Question

What are the issues in the exposure draft in Debt, Topic 470? And analyze it.  

Answer 1

Background

The FASB issued proposed changes to provide more clarity about the classification of debt (current or non-current) on a classified balance sheet. Under the proposal of Topic 470, entities would focus on legal rights that exist at the balance sheet date.

ISSUES

Under the proposal.The amendments is provide a shift in the classification of certain debt arrangements between current and non -current liabilities. The proposal replace the current, fact and specific guidance with a comprehensive basis for debt classification.

an entity can classify an instrument as non -current if the following condition is met as of the balance sheet date:

1. The liability is contractually due to be settled more than one year (or operating cycle, if longer) after the balance sheet date.
2. The entity has a contractual right to defer settlement of the liability for a period more than one year (or operating cycle, if longer) after the balance sheet date.

If an entity has a debt agreement violation and receives a waiver or a forbearance agreement for that violation that meets certain conditions before the financial statements are issued (or are available to be issued) the debt would continue to be classified as a noncurrent liability.