Question

At their last year end, December 31, 2019, the liabilities outstanding of ICAP Corp. included the following:

1.    Cash dividends on common shares, $100,000, payable on January 15, 2020

2.    Note payable to Lombard Bank, $850,000, due January 26, 2020

3.    Serial bonds, $2,000,000, of which $500,000 matures during 2020

4.    Note payable to UBI Banca, $200,000, due January 27, 2020

The following transactions occurred early in 2020:

January 15:     The cash dividends were paid.

January 25:     ICAP entered into a financing agreement with Deutche Bank, enabling it to borrow up to $1,000,000 at any time through the end of 2020. Amounts borrowed under the agreement would bear interest at 1% above the bank's prime rate and would mature 3 years from the date of the loan. The corporation immediately borrowed $800,000 to be used in paying its January 26 note to Lombard Bank.

January 26:     The note payable to Lombard Bank was paid.

January 27:     40,000 common shares were issued for $300,000. $200,000 of the proceeds was used to pay off the note payable to UBI Banca.

February 1:     The financial statements for 2019 were issued.

Required

1. Prepare a partial statement of financial position for ICAP Corp., showing the manner in which the above liabilities should be presented at December 31, 2019 under ASPE. The liabilities should be properly classified between current and long-term, and any appropriate note disclosure should be included.
2. Repeat part but assume ICAP uses IFRS.

Answer 1

ICAP Incorp

The operating cycle is generally the average time span which is required for the business in order to expend cash for production of goods then sell the goods and receive cash from customers in exchange for the goods.

The liabilities whcih are settled within the operating cycle are short term liabilities and the liabilities settled beyond the operating cycle are of non current nature.

Generally the operating cycle of any business is assumed to be 12 months but it may vary.

(a) Partial Statement of Financial position under ASPE i.e Accounting Standards for Private Enterprises

Partial Income statement for ICAP Incorp for the year ended 31.12.2019

	Liabilities	Amount  $
	Non current liabilities
	Long term Borrowings : Serial Bonds(20,00,000-5,00,000)	$ 15,00,000	Being $ 5,00,000 reported under the Short term liabilities
	Current Liabilities
	Short term borrowings
	Trade payables
	Other Current liabilities Note payable - Lombard Serial Bonds Payable	$ 8,50,000 $ 5,00,000	These are called as Current maturities of Long term debt . As the debt is repayable now within a month from the end of the reporting date , the liability will be classified as Short term.
	Short Term provisions - Cash dividends	$ 1,00,000	The dividends are current liabilities as they are paid within 15 days from the end of the reporting date

Foot note : Agreement for refinancing worth $ 10,00,000 @ 1 percent extra rate of interest , made with Duetche bank , for a period of 3 years starting from the year 2020.

Since only the agreement has been signed but no funds have been transferred till the end of the reporting period, the fincancial impact will not be considered under ASPE. Also it has been assumed that it is not a callable debt as the same has not been clearly mentioned.

(b) Partial Statement of Financial position under IFRS i.e International Financial Reporting Standards :

IAS-1 viz International Accounting Standard-1 , on the subject matter of  Presentation of Financial Statements details the complete requirements for financial statementsregarding the concpets and convnetions , the structures and formats, the basis of accounting as well as how to distinguish between a current and non current item.

In the given question, a few of the liabilities have been immediately discharged within a span of 2 months from the date of balance sheet i,e 31.12.2019. Hence the company wants to know the classification of the liabilities as current or non current on the balance sheet date.

The IAS -1 requires the company following IFRS to explicitly mention in the note regarding the adhereance to IFRS. It is mandatory. The classification of Current and Non Current , assuming ICAP Incorp follows IFRS has been discussed below:

The current liabilities are the liabilities which fulfill the following crietria :

The liabilities which are expected to be settled within the entity's normal operating cycle.

The liabilities which are specificlaly related to the trading activities .

The liabilities which are due for settlement within 12 months

The liabilities over which the comnpany cannot defer the settlement beyond 12 months at the end of the accounting period .

Long Term or Non current LIabilities :

When the company has a discretion to refinance a long-term debt under any existing loan facility, and  the debt is classified as non-current, even though the liability would have otherwise been due within 12 months.

In case of breach of contract , if any liability becomes payable on demand , it would be treated as a current liability.

If the lender agrees to provide a grace period of 12 months after the end of the reporting period , during which the compnay can rectify the breach and the immediate payment cannot be demanded by the lender, then the liability is classified as Non Current. .

When the company issues equity instruments against settlement , the classification of liability remains unchanged .
Partial Income statement under IFRS  for ICAP Incorp for the year ended 31.12.2019

	Liabilities	Amount  $
	Non current liabilities
	Long term Borrowings : Note payable - Lombard Serial Bonds(20,00,000-5,00,000) Note payable - UBI Banca	$ 8,50,000 $ 15,00,000 $ 2,00,000	As per the point mentioned above regarding refinancing , the nature of liabiklity regarding Lombard remains unchanged . Being 5,00,000 reported under the Short term liabilities Since the company has decided to issue equity against debt, the liability remains non current .
	Current Liabilities
	Short term borrowings
	Trade payables
	Other Current liabilities Serial Bonds Payable	$ 5,00,000	These are called as Current maturities of Long term debt . As the debt is repayable now within a month from the end of the reporting date , the liability will be classified as Short term.
	Short Term provisions - Cash dividends	$ 1,00,000	The dividends are current liabilities as they are paid within 15 days from the

Disclosures :

The company has entered into a refinancing agreement , wherein it would get a sum of 10,00,000 for aperiod of 3 years and the funds can be procured  anytime in the year 2020 @ 1 percent higher rate of interest as compared to the bank rate. The compnay intends to repay its debt owed to Lombard worth 8,50,000 through the same.