TRUE OR FALSE? (Based on the book.)The effect of a lender agreeing to give the borrowing entity a grace period within the reporting period will make a liability noncurrent. 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

SOLUTION NON CURRENT LIABILITIES ARE THE COMPANY'S LONG TERM FINANCIAL DEBTS OR LIABILITIES THAT ARE…

Answered: TRUE OR FALSE? (Based on the book.)…

TRUE OR FALSE? (Based on the book.) The effect of a lender agreeing to give the borrowing entity a grace period within the reporting period will make a liability noncurrent.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In which of the following instances would a liability that would otherwise be presented as current is presented as noncurrent a. The liability is payable on demand but the lender promises the entity after the reporting period that the lender will not demand payment in the next 12 months b. The entity enters into a refinancing agreement after the reporting period but before the financial statements are authorized for issue c. The entity enters into a refinancing agreemerit and the agreement is completed by the balance sheet date d. The liability is payable on demand but the entity estimates that it is probable that the lender will not demand payment
an entity has an existing note maturing within 12 months from the balance sheet date. The entity has the right to refinance the obligation for 15 months from the report date the obligation should be accounted for as A. Accounted for as a current liability when refinancing was done after the report date and after the issuance of the financial statement, with a corresponding disclosure in the notes regarding the refinancingB. Accounted for as a current liability when refinancing was done on or before the reporting date.C. Accounted for as a current liability when refinancing was done after the report date but before the issuance of the financial statement. D. Accounted for as a noncurrent liability when refinancing was done on or before the maturity date
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