Long-term Borrowings
Long-term borrowings are to be further classified into the following categories in the notes:
- Bonds/debentures
- Term loans
- from banks
- from other parties
- Deferred payment liabilities
- Deposits
- Loans and advances from related parties
- Long term maturities of finance lease obligations
- Other loans and advances (specifying nature)
The following new disclosures are important :
- Each category of borrowing should be classified as secured and unsecured. The disclosure about nature of security should cover the type of asset given as security viz. Inventories, Plant & Machinery, Land & Building etc.
- In case the promoters, other shareholders, or any third party have given any personal security for any borrowing, it should be disclosed separately.
- Non-current Loans & Advances from related parties are required to be shown separately under each head of 'Long term borrowing'.
- 'Advances taken for goods and services to be supplied are not borrowings. Only advances which are in the nature of loans should be disclosed as part of borrowing.
- Particulars of any redeemed bonds/debentures which the company has power to reissue shall be disclosed.
- Disclosure of terms of repayment of loans should be disclosed.
- Term loans from banks are separately required to be disclosed under long term borrowings.
- In case the repayment is by installment, the installments repayable within 12 months would be classified as 'current' and the rest as 'non-current'.
- Deferred payment liability which include any liability for which payment is to be made on Deferred Credit terms. e.g. deferred sales tax liability, deferred payment for acquisition of fixed assets. Payable during 12 months is short term borrowings and payable for more than 12 months is long term borrowings.
- Bonds/ debentures (along with the rate of interest and particulars of redemption or conversion, as the case may be) are to be stated in descending order of maturity or conversion, starting from farthest redemption or conversion date, as the case may be. Where bonds/ debentures are redeemable by installments, the date of maturity for this purpose is the date on which the first installment becomes due.
- Only such balances of long-term debt and finance lease obligations that do not qualify as 'current' are to be included under long-term borrowings.
- The revised Schedule requires disclosure of period and amount of continuing default as on the balance sheet date in repayment of loans and interest under long term borrowings.
- For long-term borrowings, it is provided that period and amount of "continuing default" as on the balance sheet date in repayment of loans and interest shall be specified separately in each case.
- With respect to short-term borrowings, the revised Schedule requires only "default" in repayment to be disclosed.
- However, in our view, this does not make a difference in practical terms and if default exists on the date of balance sheet, it should be disclosed.
- The revised Schedule states that where loans have been guaranteed by directors or others, the aggregate amount of such loans under each head shall be disclosed.
- The existing Schedule requires disclosure of loans guaranteed by directors or manager only. Thus, the new disclosure would cover all guarantees.
- The existing disclosures relating to sub classification as secured or unsecured are also to be made.
