Question

The bank loan of $2,000,000 requires Irkalla to maintain certain financial ratios but Irkalla has not been able to do so and is in violation of the loan agreement. The creditor has not waived its rights in regard to the loan. What amount should Irkalla report as current liabilities at December 31, year 8?

Answer 1

Current liabilities= $3,300,000

Step-by-step explanation:

Current liabilities are defined as the amounts that a business owes other parties that is short term, usually less than one year.

This will include all short term obligations that the business has to settle.

When current liabilities are deducted from current assets it gives what is available for business operations.

From the information give

Current liabilities= Accounts payable+ Short term borrowing+ Current portion of bank loan+ Other bank loan that matures on June 30

But since they are in violation of the loan agreement the debtor will be able to collect the whole loan at anytime. So we classify the whole loan amount of $2,000,000 as a current liability. Instead of only $100,000 we consider the whole $2,000,000.

Current liabilities= 200,000+ 100,000+ 2,000,000+ 1,000,000

Current liabilities= $3,300,000

Answer 2

Current liabilities at December 31, 2014 for Irkalla;

$200,000 + $100,000 + $2,000,000 + $1,000,000 = $3,300,000.

Method of reasoning: Accounts payable-exchange and Short-term borrowings consistently fall under "Current Liabilities". Development for Other bank advance has not explicitly given (for example develops June 30, 20 × 5), so we accept it to develop on June 30, 2015. Since development is expected inside 1 year, it additionally falls under current risk as term is just a single year. On the bank credit of $2,000,000, Irkella has damaged the terms, so now this advance is likewise required to be paid off soon and thus it additionally now goes under "Current Liabilities"