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Chapter 13 — Balance Sheet Classification

13.11 Long-Term Obligations That Debtor Repays or Intends to Repay After the Balance Sheet Date

13.11 Long-Term Obligations That Debtor Repays or Intends to Repay After the Balance Sheet Date

ASC 470-10 does not require an entity to classify a long-term debt obligation as a current liability on the basis that the entity expects to settle the debt within one year (or the operating cycle, if longer) after the balance sheet date (e.g., the debtor expects to exercise an early repayment option such as an embedded call option in the debt). While ASC 210-10-45-9 states that liabilities whose “ordinary liquidation is expected to occur within a relatively short period of time, usually 12 months,” are intended for inclusion in the current liability classification, noncurrent classification is appropriate when a debt obligation meets the conditions for long-term classification even if the debtor intends to repay it within one year (or the operating cycle, if longer) after the balance sheet date. That is, if the debtor controls the ability to not repay the debt obligation within one year (or the operating cycle, if longer) after the balance sheet date, the debt represents a noncurrent liability notwithstanding the debtor’s intent to repay it within one year (or the debtor’s actual repayment of the liability after the balance sheet date and before the financial statements are issued or available to be issued). This is consistent with paragraph 13 of the Background Information and Basis for Conclusions of FASB Statement 78, which specifically states, in part, that “as a general principle, classification of debt in a debtor’s balance sheet should be based on facts existing at the balance sheet date rather than on expectations.” Therefore, a debt repayment that occurs after the balance sheet date but before the financial statements are issued or available to be issued represents a nonrecognized subsequent event under ASC 855-10-25-3.