Question

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18) Shuri Company reported the following liability balance on December 31, 2017: 12% note payable issued on March 1, 2016, maturing on March 1, 2018 5,000,000 10% note payable issued on October 1, 2016, maturing October 1, 2018 3,000,000 The 2017 financial statements were issued on March 31, 2018. On January 31, 2018, the entire P5,000,000 balance of the 12% note payable was refinanced through issuance of a long-term obligation payable lump sum. Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the obligation for at least twelve months after December 31, 2017. What amount of the note should be classified as current on December 31, 2017? A. 8,000,000 B. 5,000,000 C. 3,000,000 D. 0

Answer 1

Ans :- Option B i.e. Rs. 5000000

As per Ind As-1, Any liability will be classified as Current liability if :

1. Liability to be settled in next 12 months of reporting period. Or

2. It doesn not have unconditional right to settle it in next 12 months of reporting period

Also, As per PARA-73 of Ind-AS 1, if any entity expects and has discretion to refinance the liability for atleast 12 months then it should be classified as current liability. However if it does not have any discretion to refinace the liability then it will be treated as current liability.

For 12% note payable of Rs. 5000000 it seems company don't have any discretion to refinace it's obligation on 31-Dec-2017(i.e. reporting date) and it matures within 12 months (i.e. 01-mar-2018) of reporting date, hence it should be classified as current liability.

For 10% note payable of Rs. 3000000, As per existing loan agreement company has discretion to refinance liability for atleast 12 months after reporting date, hence it should be classified as non-current liabilty.

Hence, by applying Ind-As 1 and it's para 73, Current liability as on 31-Decc-2017 is Rs. 5000000.