TRUE OR FALSE? (Based on the book)A financial liability that is due within one year after the reporting period shall be classified as current when it is refinanced on a long-term basis after the end of the reporting period. Discretion to refinancePAS 1, paragraph 73, provides that if the entity has thediscretion to refinance or roll over an obligation for at leasttwelve months after the reporting period under an existingloan facility, the obligation is classifed as noncurrent evenif it would otherwise be due within a shorter period.Note that the refinancing or rolling over must be at thediscretion of the entity.Otherwise, if the refinancing or rolling over is not at thediscretion of the entity, the obligation is classified as acurrent liability.CovenantsCovenants are often attached to borrowing agreements whichrepresent undertakings by the borrower.These covenants are actually restrictions on the borroweras to undertaking further borrowings, paying dividends,maintaining specified level of working capital and so forth.Under these covenants, if certain conditions relating to theborrower's financial situation are breached, the liabilitybecomes payable on demand.PAS 1, paragraph 74, states that such a liability is classifiedas current even if the lender thas agreed, after the end ofreporting period and before the statements are authorizedfor issue, not to demand payment as a consequence of thebreach.However, Paragraph 75 states that the liability is classifiedas noncurrent if the lender has agreed on or before the end ofreporting period to provide a grace period ending at leasttwelve months after the end of reporting period.In this context, the grace period is a period within whichthe borrower can rectify the breach and.during which thelender cannot demand immediate payment.43KM

Financial liabilities are classified as current when they are due for settlement within 12 months,…

TRUE OR FALSE? (Based on the book) A financial liability that is due within one year after the reporting period shall be classified as current when it is refinanced on a long-term basis after the end of the reporting period.

TRUE OR FALSE? (Based on the book) A financial liability that is due within one year after the reporting period shall be classified as current when it is refinanced on a long-term basis after the end of the reporting period.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Windsor Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company.…

A: Journal entries should not be used to record routine transactions such as customer charges and…

Q: At December 31, the end of the reporting period, the analysis of a loss contingency indicates that…

A: Contingent Liability Contingent liability is one form of liability that arises based on a…

Q: a) Using the above data, compute the gross profit to be recognised for each of the three years,…

Q: Match (by letter) the correct reporting method for each of the items listed below. Reporting Method…

A: Current liability : Current liabilities are those liability which are due within a year. Long term…

Q: FRS requires lessees to recognize a right-of-use asset and related liability for leases with terms…

A: Solution: IFRS requires lessees to recognize a right-of-use asset and related liability for leases…

Q: When auditing product warranty liabilities, when should the warranty cost be recognized? Question 1…

A: Answer:- Warranty liability:- A warranty liability is an account that a business uses to record the…

Q: If at the end of the second year of a 4-year contract, a company determines total estimated costs…

A: International accounting standard require recognition of loss if the estimated costs exceed…

Q: The Richards Company paid for a five-year extended warranty on all of their equipment on March 1,…

A: Given that, Richard company paid five years warranty on all of their equipment on March 1, 2019…

Q: If a company discovers a mistake in 2021 that was made in 2018, the company records the adjustment…

A: An accounting error is a mistake in an accounting entry that is unintentional. When an error or…

Q: Under the pre-2019 accounting standards, how are operating leases reported in the lessee's balance…

A: An operating lease is a contract in which the lessor, allows the lesse, to use an asset for a length…

Q: Current liabilities are obligations where liquidation is reasonably expected to require the use of…

A: Liabilities refers to an obligation which is yet not paid for. Liabilities are divided on the basis…

Q: Current liabilities are obligations whose liquidation is reasonably expected to require the use of…

A: Liabilities: The claims creditors have over the assets or resources of a company are referred to as…

Q: A short-term note payable: O Is a written promise to pay a specified amount on a definite future…

A: Short-term note payable is not a contingent and estimated liability because it has a definite amount…

Q: (a) A manufacturer gives warranties at the time of sale to purchasers of its product. Under the…

A: To prepare the necessary journal entry, we need to calculate the expected cost of fulfilling the…

Q: Record, if necessary, an adjustment for estimated uncollectible accounts at the end of 2021 and the…

A: Entry to be passed in the year of 2021 for the estimated uncollectible Particulars Bad debt…

Q: The time period for classifying a liability as current is one year or the operating cycle, whichever…

A: Since multiple questions have been posted, as per the guidelines only the first question will be…

Q: t titles are automatically indented when amount is entered. Do not indent manually. Round…

A: The amount ofrevenue recieved towards warranty contracts is for 2 years. The warranty revenue to be…

Q: Required: Prepare the journal entries required from the issuance of the note until its maturity on…

A: Note payable is one of the liability of the business, on which regular interest payments needs to be…

Q: assume that we report the reinsurance company amount of recoverable claims 35000, expected amo…

A: Adjusting Entry-An unrecorded transaction can be tracked via altering journal entries, which are…

Q: Prepare all of the journal entries for the lessor for 2020 and 2021 to record the lease agreement,…

A: It has been given in the question that the annual lease payment is at the beginning of the year it…

Q: None

A: The journal entry reflects the transaction where the company receives cash from the exercise of…

Question

TRUE OR FALSE? (Based on the book)

A financial liability that is due within one year after the reporting period shall be classified as current when it is refinanced on a long-term basis after the end of the reporting period.

Discretion to refinance
PAS 1, paragraph 73, provides that if the entity has the
discretion to refinance or roll over an obligation for at least
twelve months after the reporting period under an existing
loan facility, the obligation is classifed as noncurrent even
if it would otherwise be due within a shorter period.
Note that the refinancing or rolling over must be at the
discretion of the entity.
Otherwise, if the refinancing or rolling over is not at the
discretion of the entity, the obligation is classified as a
current liability.
Covenants
Covenants are often attached to borrowing agreements which
represent undertakings by the borrower.
These covenants are actually restrictions on the borrower
as to undertaking further borrowings, paying dividends,
maintaining specified level of working capital and so forth.
Under these covenants, if certain conditions relating to the
borrower's financial situation are breached, the liability
becomes payable on demand.
PAS 1, paragraph 74, states that such a liability is classified
as current even if the lender thas agreed, after the end of
reporting period and before the statements are authorized
for issue, not to demand payment as a consequence of the
breach.
However, Paragraph 75 states that the liability is classified
as noncurrent if the lender has agreed on or before the end of
reporting period to provide a grace period ending at least
twelve months after the end of reporting period.
In this context, the grace period is a period within which
the borrower can rectify the breach and.during which the
lender cannot demand immediate payment.
43
K
M

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1Basic Information

VIEW

Step 2 Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

After a policy had been in effect for 18 months, a claim was submitted. The insurer determined that the insured had made a material misstatement on the application for coverage. The insurer would probably do which of the following? A. Adjust any future premiums B. Pay the claim C. Cancel the policy D. Contest the claim
Please don't provide handwriting solution
When products sold with a guarantee of free service or replacement during an extended warranty period, the costs of rendering such services should be recognized as ________________ in the year the product is sold, rather than in a later year in which the replacement is made or the repair service is performed.
The estimated warranty obligation at the end of the financial year is best described as a A. Uncertain liability OB. Contingent liability O C. Liability O D. Constructive liability OE. Unrecognized liability
A long-term liability is one that the company: Select one: a. Has owed for over one year. b. Has owed for over five years. c. Will not pay off for at least over five years d. Will not pay off for at least over one year. (Please Introduction and explanation with what is correct option and incorrect option why?) Please without plagiarism please will upvote
5. Which of the following is a characteristic of a current liability? OA current liability must be of a known amount. OA current liability is due within one year or one operating cycle, whichever is longer. A current liability must be of an estimated amount. Current liabilities are subtracted from long-term liabilities on the balance sheet.
You have recorded a revolving line of credit on your company's financial statements due within the next ten (10) months as a long-term liability. The board of directors of the company has asked you to explain why you have done so. The company has been in default with its loan covenants, but prior to the issuance of the financial statements, the bank granted a waiver. With reference to the above scenario, answer the following questions in 1 - 2 paragraphs each. What is a line of credit? What promulgated accounting literature would your use to support your rationale described in your scenario? What criteria should be met prior to reflecting this loan as a long-term liability? Why would recording the loan as a long-term liability from a business standpoint of view make sense apart from compliance with promulgated standards? What footnote disclosure would be necessary for the line of credit?
The Claims Made Policy Form will pay for looses that occur at which of the following times? After the expiration date of the policy Before the retroactive date, and reported during the policy term During the policy term, and presented after the policy term After the expiration date, and reported during the policy term
A 114. Subject:- accounting
When a contingency comes into existence after the company’s fiscal year-end, why does a liability cannot be accrued?
57. Under the New York General Business Law, which of the following is NOT an implied warranty in all contracts of sale for new housing a five-year warranty for Interior finished surfaces a six-year warranty covering material defects a one-year builder's warranty against defects in construction a two-year warranty for all plumbing, electrical, heating and air conditioning systems i
Jamison Company has the following obligations at December 31:For each obligation, indicate whether it should be classified as a current liability. (Assume an operating cycle of less than one year.) 1. (a) A note payable for $100,000 due in 2 years. Not a current liabilityCurrent liability (b) A 10-year mortgage payable of $300,000 payable in ten $30,000 annual payments. Not a current liabilityCurrent liability (c) Interest payable of $15,000 on the mortgage. Current liabilityNot a current liability (d) Accounts payable of $60,000.