User:Adamyala

A fixed liability is a type of debt. Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities. Establishing the legitimacy of a fixed liability is relevant to determining the solvency ratios of a firm.

Controversy

Financial statements

The criteria for establishing the difference between a current asset versus a fixed asset and a current liability versus a fixed liability are, with respect to importance, realization and liquidation within one year of purchase. The debate over fixed liabilities is in regards to the realization of them over fixed assets. The maturities of fixed assets and fixed liabilities range through the year and no standard is set for how the range of asset maturities average out against liability maturities. The time ranges were the same and the maturities were equal, no debate would occur.

Tax Accounting

Under current tax law, a fixed liability in an asset acquisition is treated as a cost of buying the property and is not mentioned in the buyer’s tax basis. When part of a business is sold and the buyer records a fixed liability on their books, the seller records income equal to the liability assumed. At realization, each party has an option to record the liability or asset as fixed, or contingent. Present law does not address the specifics of how liability or asset status is determined when the amount is uncertain. An alternative option of classification is by acquisition. Other issues related to whether or not tax deductions for worker’s compensation should be allowed when not based on a fixed liability. Most recent ruling establishes the deduction criteria by the firm’s payroll status.

See also

• Long-term liabilities

Category:Financial terminology