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On a five-year installment loan, the principal installment due within the coming year is $10,475 and the portion due in the following year is $10,999. How are these amounts classified on the statement of financial position?
ABoth $10,475 and $10,999 are non-current liabilities
BBoth $10,475 and $10,999 are current liabilities
C$10,475 is current; $10,999 is non-current
D$10,999 is current; $10,475 is non-current
Answer & Solution
Correct answer: C. $10,475 is current; $10,999 is non-current
1. Amounts due within one year are current liabilities.
2. The $10,475 installment is due within the coming year, so it is current.
3. Amounts due beyond one year are non-current (long-term) liabilities.
4. The $10,999 installment is due in the year after next, so it is non-current.
5. Option D reverses the two; the nearer-due amount is always the current portion.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.3 "Long-Term Note Payable", p.219_