Classification of current liability as term liability

Dear Anjali,

with regards to your querry...........

Current Liabilities are the obligations to be met (generally) in a span of one year. In relation to your querry, current liabilities should not be shown as term liabilities for the reason they have not been paid for more than 3 years. Since term liabilities (or say long term liabilities) are the obligations to be paid in long term and inability of  a company to pay current liabilities does not hold  a good reason to show current liabilities as term liabilities.

For example: Salary payable cannot be shown under the head term liability for the reason being it has remain unpaid for a longer period due to insufficient funds or any other reason.

correct me if I am wrong..........

Hello Nishant,

What precisely I was trying to ask is, if a company does not makes payment to any creditor for more than 3 years ( i.e. dormant creditor) and their payment is not to be made in coming one year period also ( due to any dispute or otherwise), then can we show it as term liability instead of current liability.

I completely agree to your views but what, if  the company is solvent and is competent to meet its obligations in time but due to abovementioned reason payment has not been made.

Dear Anjali

Only because company not making the payment for more than 3 years and is not willingg to make the payment in coming 1 year also, current liability would not be considered as term liability.

The question to answer is whether the liability becomes payable within a year or after a year. In your case, current liability is already becomes payable but company wants to postpone the payment due to dispute or some other reason.

What u r talking about is company has not paid liability due to dispute or otherwise, company’s willingness to pay later would not make a current liability term liability.

Regards,

Manoj