It is private limited company. The company has obtained a short term loan from a nationalized bank. The bank has extended this facility to the company for financing the farmers who will be supplying raw materials to the company. The primary security is the hypothecation of receivables of farmers from the company. The company has given corporate guarantee which is collateral security. In addition to collateral security the company has given pronote for the loan sanctioned to the farmers. The fact is that the bank has given the loan on the strength of the credit worthiness of the company for its working capital. What the bank gains is that by terming the loan as “financing to farmers”, the loan will be classified by the bank as loan to “Priority Sector”. The loan was released in the name of the company and the company has utilized the funds for its own use.
Is it a secured loan or unsecured loan or current liability?
Kindly advice how to disclose the outstanding in the Balance Sheet of the Company when the balance sheet is prepared in accordance with Schedule VI of the Companies Act.
20 November 2007
The short term loan from the bank is to be classified under secured loans disclosing the details of security as it is secured by receivables and that would be in accordance with Sch.VI. For the purpose of analysis if it is repayable in 12 months or less it can be taken as a current liabiltiy to determine current ratio etc.,
20 November 2007
If i am not wrong in understanding your language that loan actually pertains to farmer and bank instead of paying to farmer directky pays to company. If this is the case than amount received by company will be reduced from farmers due. Let Farmer owe Rs. 2 Lakh and company received 50,000/- from bank then farmers balance will be 1.50 Lakh and Secondly as company has given guarantee for this loan so company has to show this loan of farmer as contingent liability in its books of accounts
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