Question

PR 3 - CLASSIFICATION OF LIABILITY Following is four situation different related with obligation Mckee plc. Date reporting finance Mckee next is December 31 ,2018. Report finance that is authorized for published on March 1 ,2019. Mckee have obligation loan matures on December 31,202.1 Debt could withdrawn (callable) when only on demand giver loan 2 2020. On November 10,2018, Mckee breaking something provisions in agreement loan , so obligation that is become due on demand. At 8 December 2018, agreement achieved for ignore violation that is Mckee also has obligation period length that falls due on December 1 Mckee have obligation period long for £ 400,000, which will maturity in 4 years , with payment amounting to £ 100,000 per year. Obligations first recognized times on November 1,2018 and will maturity to first time on November 1,2019. 4. 2019. Giver loan agree for extend date maturity of up to February 15 ,2021. Agreement extension maturity signed at 15 January 2019 Mckee have obligation period short that will maturing on February 15 Requested: Identifv it How every obligation that is reported in report position finance Mckee on December 31 ,2018!

Answer 1

1. McKee has a debt obligation maturing on December 31, 2021. The debt is callable on demand by the lender at any time. If the debt is callable on demand by the lender at any time should be treated as current Liability. When the debt is callable then the maturing date on December 31, 2021 is irrelevant because the callable debt is treated as current liability 2. McKee also has a long-term obligation due on December 1, 2020. On November 10, 2018, it breaches a covenant on its debt obligation and the loan becomes due on demand. An agreement is reached to provide a waiver of the breach on December 8, 2018. In this case there is a breach of a debt covenant and when there is a breach of a debt, the debt is classified as a current liability. But if the company is able to obtain a period of grace from the lender prior to the reporting date as it was done by McKee then in that case it should be classified as non -current liability

3. McKee has a long-term obligation of F400,000, which is maturing over 4 years in the amount of £100,000 per year. The obligation is dated November 1, 2018, and the first maturity date is November 1, 2019. The current portion of the long term obligation ie. 100,000 is treated as current liability and the remaining portion of long term debt i.e. (400000 -100000) 300000 is treated as non-current liability 4. McKee has a short-term obligation due February 15, 2019. Its lender agrees to extend the maturity of up to February 15, 2021. Agreement extension maturity signed at 15 January 2019. As the agreement has not been reached until 15 January 2019 although the maturity of the obligation was extended to February 15, 2021, the obligation should be treated as current liability as there was no agreement on the reporting dates i.e. December 31, 2018.