13.12 Presentation
13.12.1 Balance Sheet Presentation
ASC 210-10
45-5 A total of current
liabilities shall be presented in classified balance
sheets.
In a classified balance sheet, current liabilities are presented separately from
noncurrent liabilities, with a summation of each total. SEC Regulation S-X, Rule
5-02 (reproduced in ASC 210-10-S99-1), requires SEC registrants within the scope
of that rule (i.e., commercial and industrial companies) to present long-term
debt separately from current liabilities when filing financial statements with
the SEC. Case G in Example 4 in ASC 470-10-55-32 illustrates the appropriate
balance sheet presentation based on the assumptions in ASC 470-10-55-14 and
55-15 (see Section 13.7.6.6).
13.12.2 Subsidiary’s and Parent’s Fiscal Years Differ
ASC 470-10 — SEC Materials — SEC Staff Guidance
Comments Made by SEC Observer at Emerging Issues
Task Force (EITF) Meetings
SEC Observer Comment: Classification of
Subsidiary’s Loan Payable in Consolidated Balance Sheet
When Subsidiary’s and Parent’s Fiscal Years Differ
S99-4 The following is the text
of SEC Observer Comment: Classification of Subsidiary’s
Loan Payable in Consolidated Balance Sheet When
Subsidiary’s and Parent’s Fiscal Years Differ.
Issues periodically occur related to
classification of a subsidiary’s loan payable in a
consolidated balance sheet when the subsidiary’s
and parent’s fiscal years differ. For example,
assume that a consolidated balance sheet prepared
as of February 29, 1988, comprised of the parent
company’s balance sheet as of that date and the
subsidiary’s balance sheet as of December 31,
1987. The subsidiary’s balance sheet included a
material loan payable to a bank due January 31,
1989. The SEC staff would expect the debt in this
case to be classified as current because to do
otherwise would result in a material
misclassification.
A subsidiary’s fiscal year may end before that of its parent. As a result, a
subsidiary may have debt that becomes due more than one year (or the operating
cycle, if longer) after the subsidiary’s balance sheet date but less than one
year (or the operating cycle, if longer) after the parent’s balance sheet date.
ASC 470-10-S99-4 includes the SEC staff’s views about the classification in this
situation. If a debt obligation matures less than one year (or the operating
cycle, if longer) after the parent’s balance sheet date, the debt should be
classified as a current liability in the parent’s consolidated balance
sheet.
13.12.3 Comparative Financial Statements
Nonauthoritative AICPA Guidance
Technical Q&As Section 3200, “Long-Term
Debt”
.13 Uncertainty Arising From Violation of Debt
Agreement
Inquiry — At the end of 20X1, a company was in
violation of its long-term debt covenant and was unable
to obtain a waiver from the bank. It therefore
reclassified its debt to current and appropriate
footnote disclosures were made. During 20X2, the
violation was cured. What is the proper classification
of the debt in the company’s 20X2 comparative financial
statements?
Reply — . . . Since the violation was cured in
20X2, the debt should be classified as long-term in the
20X2 financial statements. The debt should not be
reclassified to long term in the 20X1 financial
statements because it was a current liability based on
the facts existing at the 20X1 balance sheet date. . .
.
AICPA Technical Q&As Section 3200.13 clarifies that when an entity presents
comparative financial statements, it should not retrospectively reclassify debt
as noncurrent if the debt was appropriately classified as current when those
financial statements were first issued. The specific situation addressed in
Technical Q&As Section 3200.13 is one in which the debtor (1) violated a
covenant, which caused the debt to become repayable as of the 20X1 balance sheet
date (see Section 13.5), and (2) did not
obtain a waiver from the creditor before the 20X1 financial statements were
issued (see Section 13.5.3). Accordingly,
the debt was classified as current in the 20X1 financial statements. The debtor
cured the violation in 20X2 so that the debt qualified for noncurrent
classification in the 20X2 financial statements. Nevertheless, the debtor could
not reclassify the debt as noncurrent in its 20X2 comparative financial
statements for 20X1.