non-current liabilities such as bank notes payable, mortgages payable, and bonds payable are expected to be...

non-current liabilities such as bank notes payable, mortgages payable, and bonds payable are expected to be paid from existing current assets. select one: True, False

Expert Solution

True.

Non-current liabilities are long term liabilities. That means, whether, business will be able to pay its financial obligations in the long-run. Analysis of Long term liabilities helps to determine business solvency position where as current assets are used to assess liquidity position. By comparing non-current liabilities with cash flow, it helps to find out business financial position to pay its long-term liabilities. In this regard, cash flow to debt ratio will show whether business is financially sound or not to pay its debt, that means it analysis current and future financial standing.

In case of Bank notes payable which are due for payment within one year are classified as current liabilities.

Mortgages payable refers to make instalment payments over the term of borrowings consist of interest and reduced part of principal amount. The reduction in the principal amount is reported as current liabilities and the remaining unpaid is treated as long term in the balance sheet.

Bonds payable are recorded as long-term liability in the balance sheet as if it is due or maturity date is more than a year. However, Bond interest payable is classified as current liabilities.

in the above cases, proper analysis of debts obligations helps business to determine its financial standings and ability to pay its current obligations. Liquidity ratio helps in this regard to measure short term capabilities to pay its obligations.

Therefore, business can expect to pay some of its non-current liabilities from realisation of existing current assets if it has strong liquidity position. Afterall it is subject to liquidity position.

ekkarill92 answered 1 year ago

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