Page 8 - 1. COMPILER QB - INDAS 1

(b) Will the answer be different if the new facility is agreed upon after the end of the reporting period?

(c) Will the answer to (a) be different if the existing facility is from one bank and the new facility is from
another bank?

(d) Will the answer to (a) be different if the new facility is not yet tied up with the existing bank, but the
entity has the potential to refinance the obligation?

SOLUTION

Ind AS 1 defines current liabilities as follows:
An entity shall classify a liability as current when:
i) it expects to settle the liability in its normal operating cycle;
ii) it holds the liability primarily for the purpose of trading;

iii) the liability is due to be settled within twelve months after the reporting period; or
iv) it does not have an unconditional right to defer settlement of the liability for at least twelve months
after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its
settlement by the issue of equity instruments do not affect its classification.
An entity shall classify all other liabilities as non-current.

Accordingly, following will be the classification of loan in the given scenarios:
a) The loan is not due for payment at the end of the reporting period. The entity and the bank have agreed
for the said roll over prior to the end of the reporting period for a period of 5 years. Since the entity has
an unconditional right to defer the settlement of the liability for at least twelve months after the reporting
period, the loan should be classified as non-current.

b) Yes, the answer will be different if the arrangement for roll over is agreed upon after the end of
the reporting period because as per paragraph 72 of Ind AS 1, “an entity classifies its financial liabilities as
current when they are due to be settled within twelve months after the reporting period, even if:
(a) the original term was for a period longer than twelve months, and (b) an agreement to refinance,

or to reschedule payments, on a long-term basis is completed after the reporting period and before the
financial statements are approved for issue.” As at the end of the reporting period, the entity does not
have an unconditional right to defer settlement of the liability for at least twelve months after the
reporting period. Hence the loan is to be classified as current.
c) Yes, loan facility arranged with new bank cannot be treated as refinancing, as the loan with the earlier
bank would have to be settled which may coincide with loan facility arranged with a new bank. In this

case, loan has to be repaid within a period of 9 months from the end of the reporting period, therefore, it
will be classified as current liability.
d) Yes, the answer will be different and the loan should be classified as current. This is because, as per
paragraph 73 of Ind AS 1, when refinancing or rolling over the obligation is not at the discretion of the
entity (for example, there is no arrangement for refinancing), the entity does not consider the potential to

refinance the obligation and classifies the obligation as current.

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