Loans & their element due within the next year
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Ok ive got a question for you.
If a loan is taken and the capital element is repayble over ten years, do you show all of the loan outstanding at the end of each year as a long term liability?
Or do you show the amount that is going to be paid within the next year as current liability and the rest as a long term liability?
My question actually relates to leases, but it is the same principle. I thought the answer would instinctively be the latter but I would like to hear it from you practice boffins.
Thanks alot
Adrian
Edit: Im now pretty confident that with leases the capital elemenet (and NOT THE FINANCE ELMENT) should be shown as a current liability. Still it would nice if someone could clarify that for me and it would be interesting if someone had an opinion on general loans and whether the capital element on those due for next year should be shown as a current liability? I think maybe in academic questions it is usually assumed that the loan capital will be paid off as a block at a set date to avoid the issue.
If a loan is taken and the capital element is repayble over ten years, do you show all of the loan outstanding at the end of each year as a long term liability?
Or do you show the amount that is going to be paid within the next year as current liability and the rest as a long term liability?
My question actually relates to leases, but it is the same principle. I thought the answer would instinctively be the latter but I would like to hear it from you practice boffins.
Thanks alot
Adrian
Edit: Im now pretty confident that with leases the capital elemenet (and NOT THE FINANCE ELMENT) should be shown as a current liability. Still it would nice if someone could clarify that for me and it would be interesting if someone had an opinion on general loans and whether the capital element on those due for next year should be shown as a current liability? I think maybe in academic questions it is usually assumed that the loan capital will be paid off as a block at a set date to avoid the issue.
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Comments
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Re:Loans & their element due within the next year
Hi Adrian,
Loans over more than one year in the balance sheet are shown net of the interest element of the loan and are calculated as (1 year or less) shown as current liabilities. Loans of 2-5 years are shown as long term liabilities, therefore you are correct in your assumption and loans more than 5 years do require separate disclosure. Reference will also have to be made on the type of company you're disclosing. A small company can report under FRSSE therefore requiring standards stated above, but a medium-sized/large company will require different disclosures for their loans.
Regards
Steve
p.s. is your avatar really your photograph? If it is you look like you have just come out of a paper 2.4 ACCA exam (no offence mate
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Re:Loans & their element due within the next year
I only do small companys' accounts but personally, I've always shown the remaining capital liability on the loan in the appropriate section of the balance sheet, dependent on the term of the loan.
So YES the capital diminishes over time. This really bugged me at Intermediate because (I agree)there was an assumption that all loans were debentures or similar and the capital was never repaid.
I tend to use sum-of-digits method to compute monthly interest element of repayments over term of loan. To relieve boredom I sometimes use amortisation method supplied with Lotus 123 to compute interest element although, of course, consistent for each client!
As to splitting capital liability between that owed over more than or less than one year I never bother for my guys unless the loan has less than a year left to run. They usually only have one loan so it's easy.0 -
Re:Loans & their element due within the next year
SO basically we are all agreed then on general loans if the it is being paid off year on year (the capital element) it still isnt generally whown inthe balance sheet as a current liability, it all sits as long term liability. (or non-current liability as we now have to call it)0