Question

Which of the following does not allow a company to exclude a short term obligation from current liabilities? Group of answer choices Actually refinance the obligation. Management indicated that they are going to refinance the obligation. Have a contractual right to defer settlement of the liability for at least one year after the balance sheet date. The liability is contractually due more than one year after the balance sheet date.

Answer 1

Answer: Actually refinance the obligation.

Management indicated that they are going to refinance the obligation.

Have a contractual right to defer settlement of the liability for at least one year after the balance sheet date.

The liability is contractually due more than one year after the balance sheet date.

Explanation:

A current liability is an obligation payable within a year. A short term liability can be excluded from current abilities if management indicates that they are going to refinance it and show that they are capable of doing so.

Also if the company has a contractual right to defer settlement of the liability for at least one year after the balance sheet date, the short term obligation can be excluded.  The deferment means that it will be recognized in another period.

When the liability is contractually due more than one year after the balance sheet date, it stops being a current liability and becomes a non-current liability payable after a year.