FRK opsommings
Chapter 3: Non-current & current
liabilities
A Liability is:
• Current (present) obligation - (obligation means to owe)
• Resulting from past events – (e.g. signing a loan agreement)
• Payment will lead to decrease in economic benefits – (repayments of loan and
interest decrease cash)
Non-current liabilities
• Liabilities that lead to the sacrifice of economic benefits over a period longer than
one year.
• Examples:
Long-term loans, Mortgage bonds, Debentures (similar to issuing shares, but are
repayable and bear interest).
• Disclosure:
– Type of loan, e.g. Loan from ABC Bank
– How repayments will take place, e.g. annually on 28 Feb 20.1
– Date when repayments commence
– Interest rate and whether it is market related
– How the loan is secured (if applicable). Debentures are unsecured)
– When applicable, state the carrying amount of asset in case of secured loan
, Current liabilities
• Leads to the sacrifice of economic benefits over a period less than one year, e.g.
bank overdraft, SARS (VAT and Tax), trade creditors
• Remember: Any portion of a long-term loan which has to be paid within 1 year of
year-end is a current liability
Example:
Loan at year-end is R500 000, but R100 000 is repayable within 6 months. Thus,
disclose:
– R400 000 as Non-current liability, and
– R100 000 as Current liability
Disclosure of Liabilities in financial statements:
Disclose the liability (non-current and current) in the statement of financial
position (“on the face” of SFP)
Disclose the note “Long-term loan”
Disclose the interest expense in the statement of profit or loss and other
comprehensive income (“on the face”)
Example 3.1 Record loan In GJ & GL
REQUIRED:
Prepare the journal entry to record this and post to the general ledger.
INFORMATION:
On 1 March 20.1, Busco Traders obtained a long-term loan from Citi Bank amounting
to R100 000
Answer:
Busco Traders
General Journal for March
day Details DEBIT CREDIT
1 Bank 100 000
Long-term loan: Citi Bank 100 000
Loan obtained
, General journal of Busco Traders
BANK
20.1
Mar1 Long-term loan: 100 000
. Citi Bank
LONG-TERM LOAN: CITI BANK
20.1
Mar 1 Bank
100 000
Example 3.2: record debentures in GJ & GL
REQUIRED:
Prepare the journal entry to record this and post to the general ledger
INFORMATION:
• On 1 Mar 20.1, Cycle Limited issued 15 000 debentures of R100 each to the public.
• Interest is market related and is payable at 12% per annum
Answer:
15 000 x R100 = R1 500 000 (total debentures)
Cycle Limited
General Journal for March 20.1
day details Debit Credit
1 Bank 1 500 000
12% Debentures 1 500 000
Debentures issued
General Ledger of Cycle Limited
Bank
20.1
1 Mar 12% Debentures 1 500 000
12% Debentures
20.1
. 1 Mar Bank 1 500 000
Chapter 3: Non-current & current
liabilities
A Liability is:
• Current (present) obligation - (obligation means to owe)
• Resulting from past events – (e.g. signing a loan agreement)
• Payment will lead to decrease in economic benefits – (repayments of loan and
interest decrease cash)
Non-current liabilities
• Liabilities that lead to the sacrifice of economic benefits over a period longer than
one year.
• Examples:
Long-term loans, Mortgage bonds, Debentures (similar to issuing shares, but are
repayable and bear interest).
• Disclosure:
– Type of loan, e.g. Loan from ABC Bank
– How repayments will take place, e.g. annually on 28 Feb 20.1
– Date when repayments commence
– Interest rate and whether it is market related
– How the loan is secured (if applicable). Debentures are unsecured)
– When applicable, state the carrying amount of asset in case of secured loan
, Current liabilities
• Leads to the sacrifice of economic benefits over a period less than one year, e.g.
bank overdraft, SARS (VAT and Tax), trade creditors
• Remember: Any portion of a long-term loan which has to be paid within 1 year of
year-end is a current liability
Example:
Loan at year-end is R500 000, but R100 000 is repayable within 6 months. Thus,
disclose:
– R400 000 as Non-current liability, and
– R100 000 as Current liability
Disclosure of Liabilities in financial statements:
Disclose the liability (non-current and current) in the statement of financial
position (“on the face” of SFP)
Disclose the note “Long-term loan”
Disclose the interest expense in the statement of profit or loss and other
comprehensive income (“on the face”)
Example 3.1 Record loan In GJ & GL
REQUIRED:
Prepare the journal entry to record this and post to the general ledger.
INFORMATION:
On 1 March 20.1, Busco Traders obtained a long-term loan from Citi Bank amounting
to R100 000
Answer:
Busco Traders
General Journal for March
day Details DEBIT CREDIT
1 Bank 100 000
Long-term loan: Citi Bank 100 000
Loan obtained
, General journal of Busco Traders
BANK
20.1
Mar1 Long-term loan: 100 000
. Citi Bank
LONG-TERM LOAN: CITI BANK
20.1
Mar 1 Bank
100 000
Example 3.2: record debentures in GJ & GL
REQUIRED:
Prepare the journal entry to record this and post to the general ledger
INFORMATION:
• On 1 Mar 20.1, Cycle Limited issued 15 000 debentures of R100 each to the public.
• Interest is market related and is payable at 12% per annum
Answer:
15 000 x R100 = R1 500 000 (total debentures)
Cycle Limited
General Journal for March 20.1
day details Debit Credit
1 Bank 1 500 000
12% Debentures 1 500 000
Debentures issued
General Ledger of Cycle Limited
Bank
20.1
1 Mar 12% Debentures 1 500 000
12% Debentures
20.1
. 1 Mar Bank 1 500 000
