Borrowings, Debentures and Other Liabilities Presentation in Company Balance Sheet

Understand Borrowings, Debentures and Other Liabilities Presentation

Key rules to remember

Long-term borrowing to be shown (non-current)

Total long-term borrowing outstanding − Amount repayable within 12 months of reporting date

The deducted part goes to current maturities of long-term debt under other current liabilities.

Current maturities of long-term debt

Instalments or redemption due within 12 months → Other current liabilities

Applies to term loans, debentures and finance lease obligations.

Current liability test

Settled in normal operating cycle OR held primarily for trading OR due within 12 months after the reporting date

If any one condition holds, classify as current. These are the three Division I (non-Ind AS) tests. The 'no unconditional right to defer settlement for at least 12 months' test belongs only to Division II (Ind AS).

Trade payables ageing buckets

Less than 1 year | 1-2 years | 2-3 years | More than 3 years

These are the four age buckets, measured from the due date of payment. The format also has a separate 'Not due' column and lines for unbilled dues. Show MSME, Others, Disputed MSME and Disputed Others separately.

Debenture issued at discount, shown in balance sheet

Show debentures at the redemption (face) amount under long-term borrowings. The unamortised discount is shown under other non-current assets or other current assets, or is written off against securities premium under Section 52 of the Companies Act, 2013

The debentures are not shown net of the discount. If the discount is carried forward as an asset, show the unamortised portion under other non-current assets or other current assets, depending on when it will be written off. Where securities premium is available, the discount may instead be written off against it under Section 52.

Interest on borrowings

Interest accrued and due / Interest accrued but not due → Other current liabilities (separate sub-heads)

Do not add it to the principal in the borrowings note.

How to solve Borrowings, Debentures and Other Liabilities Presentation questions

1. 1List every liability from the trial balance or data given: loans, debentures, overdraft, creditors, bills payable, provisions, interest due, advances received.
2. 2For each, decide non-current or current using the 12-month test from the reporting date.
3. 3Split each long-term loan and debenture into the amount due after 12 months and the amount due within 12 months.
4. 4Put the long-term part under non-current liabilities, long-term borrowings, with the correct sub-head (debentures, term loans from banks and so on).
5. 5Put the current maturities, interest accrued and due, and short-term loans under current liabilities. Put current maturities under other current liabilities and short-term loans under short-term borrowings.
6. 6Show trade payables (creditors plus bills payable) as one head and note the ageing if data is given.
7. 7Split provisions into long-term and short-term. Show the nature of security and terms of redemption in a note.
8. 8Check that total liabilities plus equity agree with total assets.

Quickest way: Three-bucket sort for MCQs and written answers

Common mistakes in Borrowings, Debentures and Other Liabilities Presentation

• Showing the whole term loan under long-term borrowings when an instalment falls due within 12 months.

  You see 'term loan' and stop thinking about the repayment date.

  Fix: Always read the repayment schedule. Move the next 12 months' instalment to other current liabilities as current maturities.

• Showing current maturities of long-term debt under short-term borrowings.

  Both are current and sound similar.

  Fix: Short-term borrowings are loans taken for short periods. Current maturities of long-term debt go under other current liabilities.

• Including bank overdraft in trade payables.

  It is a liability to an outside party, so it looks like a creditor.

  Fix: Trade payables are only for goods and services purchased. Overdraft is a short-term borrowing.

• Adding accrued interest to the principal of the debentures or loan.

  Interest belongs to the loan, so it feels natural to combine them.

  Fix: Show interest accrued and due, and interest accrued but not due, separately under other current liabilities.

• Leaving out the security details and terms of redemption.

  You focus on amounts only.

  Fix: Add a note stating the nature of security, the terms of repayment and the rate of interest. Also state any default in repayment.

• Putting all provisions under current liabilities.

  Provision for tax and proposed items are usually current, so you assume all are.

  Fix: Split provisions by timing. Provision for employee benefits such as gratuity may have both a long-term and a short-term part.

Worked examples