Question

Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

a. Intend to refinance the obligation on a long-term basis.
b. Obligation must be due with one year.
c. Demonstrate the ability to complete the refinancing.
d. Subsequently refinance the obligation on a long-term basis.

Answer 1

Option (d), To exclude a short-term obligation from current liabilities, it is not necessary to have already refinanced the obligation on a long-term basis by the balance sheet date. Intent and ability to refinance are the crucial conditions.

Step-by-step explanation:

The condition which is not necessary to exclude a short-term obligation from current liabilities is d. Subsequently refinance the obligation on a long-term basis. For an obligation to be excluded from current liabilities, there are certain conditions that must be met.

These are the intention to refinance the obligation on a long-term basis, demonstration of the ability to complete the refinancing, and as a general rule, the obligation must be due within one year. Actually completing the refinancing on a long-term basis after the balance sheet date is not a condition that must be met before the financial statements are issued. Rather, it is the intent and ability to refinance that are key considerations.