6. Non-current Liabilities Flashcards
How might a company borrow money?
A company may borrow directly from a bank or it may borrow in the form of debt securities (loan stock, debenture loan or bonds).
How do debt securities affect the financial statements?
The company has a contractual obligation to pay interest on debt securities.
Interest due for the period will be included as a finance cost within the statement of profit or loss and any unpaid interest at the year end must be included in the statement of financial position within accruals and other payables.
Debt securities are similar in concept to any other type of loan. Unless they are due to reach maturity within 12 months, they are included in non-current liabilities in the statement of financial position. Any amount due for redemption within 12 months is shown under current liabilities.
What is the accounting treatment (journal entry) for non-current liabilities on issue of debt?
On issue of debt:
Debit - Cash
Credit - Non-current liabilities
What is the accounting treatment (journal entry) for non-current liabilities on repayment of debt?
On repayment of debt:
Debit - Non-current liabilities
Credit - Cash
What is the accounting treatment (journal entry) for paying interest on non-current liability debts within the year?
For interest paid in year:
Debit - Interest expense (finance cost)
Credit - Cash
What is the accounting treatment (journal entry) for paying interest on non-current liability debts after year end?
For interest paid after the year end:
Debit - Interest expense (finance cost)
Credit - Accruals
How do you account for loan repayments via shares?
When a loan is repaid through the issue of shares the outstanding loan at redemption is effectively the proceeds from the issue of shares, so you:
Debit Loan (the value to clear)
Credit Share capital (the nominal value x no. of shares being issued)
Credit Share premium (balancing figure)
