Trade payables and provisions appear on the SFP. Explain an important difference
ID: 2551763 • Letter: T
Question
Trade payables and provisions appear on the SFP. Explain an important difference between the amounts derived under trade payables and the amounts derived under provisions.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In millions of Korean won, in thousands of US dollars (Note 2.28)) December 31, 2015 KRW December 31, 2016 December 31, December 31, 2016 KRW 2015 USD Notes Liabilities and Equity Current liabilities Trade payables Short-term borrowings Other payables Advances received Withholdings 6,485,039 12,746,789 11,525,910 1,358,878 685,028 12,527,300 2,837,353 1,232,817 4,597,417 351,176 356,388 54,704,095 11,155,425 8,864,378 1,343,432 992,733 11,628,739 3,401,6245 221,548 6,420,603 287,135 5,591,350 10,990,18:3 9,937,550 171,614 590,626 10,800,941 5,334,634 9,618,121 7,642,798 1,158,297 855,927 10,026,208 2,932,855 191,017 5,535,794 247,565 ccrued expenses Income tax payable Current portion of long-term liabilities Provisions Other current liabilities Liabilities held-for-sale Total current liabilities 1,062,925 3,963,857 302,781 307,275 47,165,4406 50,502,909 43,543,2106 Non-current liabilities Debentures Long-term borrowings Long-term other payables Net defined benefit liabilities Deferred income tax liabilities Provisions Other non-current liabilities Total liabilities 58,542 1,244,238 3,317,054 173,656 7,293,514 358,126 2,062,066 69,211,291 50,474 1,072,772 2,859,938 149,725 1,230,448 266,542 3,041,687 358,820 5,154,792 522,378 2,042,140 63,119,716 1,060,883 2,622,519 309,372 4,444,422 450,390 1,760,717 54,421,329 18 308,773 1,777,899 59,673,438Explanation / Answer
Trade Payable is classified in current liability which is usually payable within one year. It is listed above all the current liabilities as it represents the first claim on the company’s assets by the creditors. Also, when a potential lender reviews the company’s consolidated statements, he gives attention to what company owes to his suppliers currently. Also, if trade payable is above the cash in hand, then the company will not be able to fulfill its payable obligations.
Provision is an expenditure relating to a particular accounting period but not due on the date of financial statements. Provisions are established by recording an appropriate expense in the income statement of the business and establishing a corresponding liability as a provision account in the balance sheet. As mentioned in the consolidated statement, provision account is included in the liabilities section of the balance sheet either as a current or non-current liability.
Thus, on the basis of above expiations a provision can be created only for an expenditure which accrues, and not for an expenditure which arises. However, Trade payable are the expenses which have been arises due to course of the actions of the business and payable in short term.
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