Question

Which of the following statements is correct?

a. A company may exclude a short-term obligation from current liabilities if it intends to

refinance the obligation on a long-term basis.

b. A company may exclude a short-term obligation from current liabilities if it has an

unconditional right to defer settlement of the liability for at least 12 months.

c. A company may exclude a short-term obligation from current liabilities if it is paid off

after the statement of financial position date and subsequently replaced by long-term

debt before the statement of financial position is issued.

d. None of these answer choices are correct.

why the answer d?

Answer 1

Correct answer is d) as all other statements are false.

A short-term obligation should be excluded from current liabilities if both options a) and option b) are satisfied.

Option (a) alone (or) option (b) alone cannot be considered as a criteria for considering a short-term obligation as a long-term liability. Also a company cannot exclude its short-term obligation from current liabilities if it is paid off after the balance sheet date and replaced by a long-term debt before the issuance of balance sheet.

Hence none of the three options are correct.