Hi !
Long term loan having term 5 year. In 3rd year end, the Company has decided to repay all loan obligation within 12 month after reporting date. Reporting date 30 September 2023.
As at 30 September 2023, the Company has classified all non-current maturity of loan as current liabilities. Subsequent to reporting date, the Company has repaid all loan.
Classification of non-current portion of loan under current liabilities as at 30 September 2023 is correct under IFRSs ?
Classification of non-current liabilities as current
Re: Classification of non-current liabilities as current
This is not correct.
IAS 1.69: "An entity shall classify a liability as current when: ... (d) it does not have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period... An entity shall classify all other liabilities as non‑current."
Your organisation does have the right, it is just choosing not to exercise that right.
IAS 1.75A [A new paragraph added this year (effective next year) intended to clarify the requirements]: "Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least twelve months after the reporting period. If a liability meets the criteria in paragraph 69 for classification as non-current, it is classified as non-current even if management intends or expects the entity to settle the liability within twelve months after the reporting period, or even if the entity settles the liability between the end of the reporting period and the date the financial statements are authorised for issue. However, in either of those circumstances, the entity may need to disclose information about the timing of settlement to enable users of its financial statements to understand the impact of the liability on the entity’s financial position (see paragraphs 17(c) and 76(d))."
IAS 1.69: "An entity shall classify a liability as current when: ... (d) it does not have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period... An entity shall classify all other liabilities as non‑current."
Your organisation does have the right, it is just choosing not to exercise that right.
IAS 1.75A [A new paragraph added this year (effective next year) intended to clarify the requirements]: "Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least twelve months after the reporting period. If a liability meets the criteria in paragraph 69 for classification as non-current, it is classified as non-current even if management intends or expects the entity to settle the liability within twelve months after the reporting period, or even if the entity settles the liability between the end of the reporting period and the date the financial statements are authorised for issue. However, in either of those circumstances, the entity may need to disclose information about the timing of settlement to enable users of its financial statements to understand the impact of the liability on the entity’s financial position (see paragraphs 17(c) and 76(d))."
Re: Classification of non-current liabilities as current
It's a common mistake actually - to classify liabilities as current on the basis of expected repayment, rather than considering the right to defer the settlement.
Re: Classification of non-current liabilities as current
In continuity of question " Classification of non-current liabilities as current", and base on below para 72 of IAS 1, Is accounting treatment of the entity is seem to be correct?
Because, as at reporting date, the entity has full intention to pay off its all loan obligation (entity write a letter to respective lenders and show its intention to earlier repayments of all loan obligation and due to be settled within twelve months after the reporting period) and after reporting date, it has paid all its loan obligation towards respective lenders.
IAS 1:72 "An entity classifies its financial liabilities as current when they are due to be settled within twelve months after the reporting period, even if:
(a) the original term was for a period longer than twelve months, and
(b) an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue."
Because, as at reporting date, the entity has full intention to pay off its all loan obligation (entity write a letter to respective lenders and show its intention to earlier repayments of all loan obligation and due to be settled within twelve months after the reporting period) and after reporting date, it has paid all its loan obligation towards respective lenders.
IAS 1:72 "An entity classifies its financial liabilities as current when they are due to be settled within twelve months after the reporting period, even if:
(a) the original term was for a period longer than twelve months, and
(b) an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue."
Re: Classification of non-current liabilities as current
What's your assessment based on exIFRS's explanation in previous post and our KB article at https://ifrscommunity.com/knowledge-bas ... abilities/?