CMA Study Group

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  • 1.  Unit 1 Question

    Posted 08-07-2020 12:47 PM

    Hello everyone can anyone help me understanding this Question ( An easy and simple way please )

    Non current debt should be included in the current section of the statement of financial position if
    A. Management plans to refinance it within the year.
    B. It matures within the year and will be retired through the use of current assets.
    C. A bond retirement fund has been set up for use in its scheduled retirement during the next year.
    D. It is to be converted into common stock before maturity.
      

    The answer is B



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    Asmaa Mohamed
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  • 2.  RE: Unit 1 Question

    Posted 08-08-2020 06:16 AM

    Hello,

    A non current debt is a long term liability. However, suppose for example, this non-current debt was for 5 years and the tenure will expire in August 2020. The management plans to pay for this using current assets in the same year 2020. The non current liability now has a lifespan of less than 1 year and so should be included in the current liabilities section. 

    Hope that helps.

    Best Regards,
    Tolu



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    Tolulope Olajide
    Director/Manager
    Al Wakra
    Qatar
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  • 3.  RE: Unit 1 Question

    Posted 08-08-2020 12:02 PM
    Hello,

    As to add more on Tolulope Olajide explanation, Option (A) is not correct because, when management plans or intends to refinance a debt and demonstrates the ability to do so by entering into a refinancing agreement before balance sheet is issued, it means a short-term debt will be reclassified as non-current debt.

    Further more, Current liabilities include those obligations that are expected to be satisfied by the (1) payment of cash, (2) use of current assets other than cash, or (3) creation of new current liabilities within 1 year from the balance sheet date (or operating cycle, if longer).

    Hope it helps.


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    Adham Mourad
    Accountant
    Doha
    Qatar
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  • 4.  RE: Unit 1 Question

    Posted 08-09-2020 01:07 AM
    ​Hi There !

    Non current debt should be included in the current section of the statement of financial position if
    A. Management plans to refinance it within the year.
    B. It matures within the year and will be retired through the use of current assets.
    C. A bond retirement fund has been set up for use in its scheduled retirement during the next year.
    D. It is to be converted into common stock before maturity.

    The answer is B.

    Explaination;

    Current liabilities include those obligations that are expected to be satisfied by the (1) payment of cash, (2) use of current assets other than cash, or (3) creation of new current liabilities within 1 year from the balance sheet date (or operating cycle, if longer).

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    Rhiens Racoma
    Accountant Assistant / Payroll Officer
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