Question

Debt (Topic 470)
Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent)

1. Research the need for the new standard/amendment (include pros and cons).
2. Evaluate the exposure draft’s provisions in light of the conceptual framework (include qualitative characteristics of useful information).

  

The Board issued this Exposure Draft to solicit

Answer 1

Current and Non-current liabilities;

According to the accounting standard, liabilities are classified into two Current liabilities and Non-current liabilities in a classified balance sheet of a company. Presenting both assets and liabilities are current and non-current is essential for the purpose of financial ratio analysis.

Current liabilities in Classified Balance Sheet.;

Current liabilities are the Debts/ owing of the company expected to settle within 12 months of the date of balance sheet. Most of the liabilities are recorded in the balance sheet at its historical cost rather than fair value.

Any amount a company owes its employees or the government for payroll taxes is current liability.

Examples of current liabilities;

1. Short-term note payable: Due in full less than 12 months after the balance sheet date.
2. Accounts payable: Money owes to its vendors or suppliers.
3. Payroll liabilities
4. Current portion of long-term notes payable
5. Unearned Revenue: Money collects from customers but it will become due during the next 12 months period.

Non-current liabilities;

Long-term liabilities of the company and it is not expecting to settle within the next 12 months from the date of balance sheet.

Examples;

1. Bonds Payable: Long-term lending agreement between borrower and lender.
2. Long-term Leases: The lease obligation of a Capital leases which is extended for more than 12 months period.
3. Product warranties: Company expect to make good on repairing or replacing goods sold to customers the obligation extends beyond 12 months from the balance sheet date.