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Buyers credit accounting

rahul (Finance Manager) (91 Points)

09 November 2011

I am working in an import firm. I want to know the accounting for buyers credit and under what head it is shown on the balancesheet. (Buyers credit is sort of a short term loan from an overseas bank for purchasing raw material). Is it under the head current liability because its a short term finance or to be included under the head secured loan because it is secured via collateral?

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6 Replies

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 09 November 2011

If Secured then it is under Secured Loan else under Current Liablity

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rahul (Finance Manager) (91 Points)
Replied 09 November 2011

Thank You for your reply. But it is a short term secured loan so now under what head should i put it.

NILESH MANDOLE, MBA (Fin),CS (Financ Manager) (296 Points)
Replied 09 November 2011

If Buyers credit is for Raw material then it is only available for 1 year i.e. 360 days and if it is for capital goods it is available for 3 years i.e. 1080 days.

In case of raw material it will be come under the head of current liability & in case of capital goods it will be come under unsecured loan but not the secured loan. Because, for raising the Buyers credit our bank creates the some % of FD against which it gives the Bank Guarantee to lender bank. Buyers credit doesn't get secured by any collateral security (Asset).

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 09 November 2011

Tricky so put it under current liablities like the way Bank overdraft is classified

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 10 November 2011

Check the terms of this loan and the collateral provided with it and u will have following scenarios:

1. Term for more than 12 months and has collateral attached to it - Secured loan under non-current liability.

2. Term for more than 12 months with no collateral attached to it - Unsecured loan under non-current liability.

The answer will be vice versa if the term is less than less than 12 months and it will be classified under current liability.

Consider the following case

If in your case the loan is guaranteed by the parent company of the borrower then such a loan is secured loan or unsecured loan in the financial statements of the borrower?

Thanks

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rahul (Finance Manager) (91 Points)
Replied 10 November 2011

term is less than less than 12 months and also its secured by collateral security (ie. Its secured by proprty). Hence I am confused whether to put it under secured loans or current liability because there is no head as seured loan under current liability..also according to schedule 6 it I put it under secured loans then it gives the appearence of long term loan while it is actually a short term funding. OD account with bank is also collateralised with housing property hence currently we are including it in secured loans.but again its a current liability but we are not able to show it there for d same reason mentioned above.