A bank loan for $50 000, taken out on 1 July 2018, is repayable in equal instalments, plus interest, over 5 years. The annual repayments are due on the second last day of the financial year. How would the loan be classified in a balance sheet prepared at 30 June 2019, the end of the entity's financial year?

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Quizplus · Accepted Answer

The loan was taken out on 1 July 2018 and repayable over 5 years, which means it matures on 30 June 2023. Therefore, it can be classified as a non-current liability. However, since the annual repayments are due on the second last day of the financial year, only the next year's repayments would be due within the next 12 months, which amounts to $10,000 (1/5th of the total loan amount). Therefore, $10,000 should be classified as a current liability, and the remaining $40,000 should be classified as a non-current liability.

A Bank Loan for $50 000, Taken Out on 1