Chpt 13

Question 1

Define long-term borrowings

Answer 1

Long-term borrowings are loans that a business borrows from a bank which has a repayment period of more than one financial year.

Question 2

Define current portion of long-term borrowing

Answer 2

CPLTB refers to the portion of the principal sum that is to be repaid within the next financial year.

Question 3

Define bank overdraft

Answer 3

Bank overdraft occurs when the business withdraws more than what is has deposited in the bank account, up to the limit which the business and the bank have agreed upon.

Question 4

Why business obtain loans

Answer 4

A business may borrow money as it requires additional funds for its operations such as to expand the business, to fund day to day operation, to buy non-current asset and to fund other business plans.

Question 5

Accoutning theory for interest expense

Answer 5

Matching theory
The interest expense incurred must be matched against the income earned from using the loan to operate the business in the same accounting period to determine the profit for that period.