13.6 SACs in Long-Term Obligations
ASC 470-10
45-2
In some situations, the circumstances (for example,
recurring losses or liquidity problems) would indicate that
long-term debt subject to a subjective acceleration clause
should be classified as a current liability. Other
situations would indicate only disclosure of the existence
of such clauses. Neither reclassification nor disclosure
would be required if the likelihood of the acceleration of
the due date were remote, such as if the lender historically
has not accelerated due dates of loans containing similar
clauses and the financial condition of the borrower is
strong and its prospects are bright.
50-3
As indicated in paragraph 470-10-45-2, in some situations
long-term debt subject to a subjective acceleration clause
shall be reclassified. That paragraph explains that other
situations would indicate only disclosure of the existence
of such clauses. That paragraph states further that neither
reclassification nor disclosure is required if the
likelihood of the acceleration of the due date is remote,
such as when the lender historically has not accelerated due
dates of loans containing similar clauses and the financial
condition of the borrower is strong and its prospects are
bright.
If a long-term debt obligation contains a SAC, the debtor should assess the
likelihood that the creditor will accelerate the debt’s due date. If exercise of the
SAC is probable, the long-term obligation must be classified as a current liability
and the SAC disclosed. If the debtor has experienced recurring losses or liquidity
problems, the obligation should be classified as current unless the exception for
refinancing arrangements applies (see Section
13.7). If the likelihood that the creditor will accelerate the debt’s
due date is reasonably possible, the existence of the SAC should be disclosed. If
the likelihood that the debt’s due date will be accelerated is remote, neither
disclosure nor reclassification is required. If a creditor has accelerated the
debt’s due date under a SAC, the debt is considered due on demand (see Section 13.4) and is classified as current unless
the exception for refinancing arrangement is met.
ASC 470-10 contains guidance on the impact of SACs on the classification of
revolving-debt arrangements that require a lockbox arrangement (see Section 13.8).