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ACCA Applied Skills · Financial Reporting · Preparation of single entity financial statements

At 31 December 20X5 Kestrel Co has a loan of $400,000 repayable on 30 June 20X6. Before the financial statements are authorised, but after the reporting date, Kestrel agrees with the bank to refinance it as a loan repayable in 20X9. The original terms gave Kestrel no right to roll over the loan. How should the loan be classified at 31 December 20X5?

The loan is a current liability. At the reporting date Kestrel had no right to defer settlement beyond twelve months, and refinancing agreed after that date does not change the classification; it is only disclosed as a non-adjusting event.

  1. ANon-current liability, because refinancing was agreed before authorisation
  2. BCurrent liability, because no right to defer settlement existed at the reporting dateCorrect
  3. CSplit equally between current and non-current liabilities
  4. DDisclosed in the notes only

Explanation

IAS 1 classifies a liability as non-current only if the entity has a right at the reporting date to defer settlement for at least 12 months. Refinancing agreed after the reporting date is a non-adjusting event, so the loan stays current. Option A wrongly uses post-year-end events.

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