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CMA Intermediate · Corporate Accounting and Auditing · Audit of Various Items of Financial Statements

Gamma Ltd has a term loan of Rs 60,00,000 repayable in 5 equal annual instalments of Rs 12,00,000, the first falling due within 12 months after the reporting date. The reporting date balance is the full Rs 60,00,000, with no covenant breach. The auditor checks presentation under Schedule III. What should be presented as non-current borrowings and current maturities respectively?

Rs 12,00,000 due within twelve months is shown as current maturities of long-term debt, and the balance of Rs 48,00,000 stays in non-current borrowings. Presenting the whole Rs 60,00,000 as non-current ignores the current classification, so the auditor should require this split.

  1. ANon-current borrowings Rs 48,00,000; current maturities of long-term debt Rs 12,00,000Correct
  2. BNon-current borrowings Rs 60,00,000; current maturities nil
  3. CNon-current borrowings nil; current maturities Rs 60,00,000
  4. DNon-current borrowings Rs 12,00,000; current maturities Rs 48,00,000

Explanation

The portion due within 12 months, Rs 12,00,000, is a current liability (current maturities of long-term debt). The remainder, 60,00,000 - 12,00,000 = Rs 48,00,000, stays non-current. Showing the whole amount as non-current ignores the classification, and reversing the figures swaps the split.

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