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CSEET · Fundamentals of Accounting · Preparation of Final Accounts for Sole Proprietorship

Ravi Traders owes Rs 40,000 to a supplier due in 4 months and has taken a bank loan of Rs 2,00,000 repayable after 3 years. Which classification in the balance sheet is correct?

The Rs 40,000 payable to the supplier is a current liability because it falls due within twelve months, while the Rs 2,00,000 bank loan repayable after three years is a long-term liability. Classification depends on when the obligation must be settled.

  1. ABoth are current liabilities
  2. BBoth are long-term liabilities
  3. CSupplier amount is current; bank loan is long-termCorrect
  4. DSupplier amount is long-term; bank loan is current

Explanation

A liability payable within twelve months of the balance sheet date is current, so the Rs 40,000 creditor is current. The loan repayable after 3 years is beyond twelve months and is therefore long-term. The reversed or uniform treatments ignore the due dates.

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