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Chapter 13: Question 8Q (page 715)

How should a debt callable by the creditor be reported in the debtor鈥檚 financial statements?

Short Answer

Expert verified

Debt that is callable by the creditor should be grouped under current liability.

Step by step solution

01

Meaning of Financial Statements

Financial statements are the statements prepared by all forms of business organizations to ascertain the result of operating, financial and investment activities and to know the financial position on the date of closing of books of accounts.

02

Reporting of debtor’s financial statements

It is necessary to segregate debt as current as it is assumed that the existing working capital will be used to repay the loan. Liabilities usually become redeemable by the creditor in case of breach of the debt agreement. However, if it can be anticipated that the breach will be corrected within the trial period stipulated in these agreements, the debt may be listed as non-current.

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Most popular questions from this chapter

Under what conditions must an employer accrue a liability for the cost of compensated absences?

Within the current liabilities section, how do you believe the accounts be listed? Defend your position.

BE13-10 (L03) Scorcese Inc. is involved in a lawsuit at December 31, 2017. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.

Distinguish between a determinable current liability and a contingent liability. Give two examples of each type.

Under IFRS, a provision is the same as:

(a) a contingent liability (c) a contingent gain

(b) an estimated liability (d) None of the above
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