Question

A company AB Ltd issued 12% debentures of ₹ 10,00,000 of ₹ 100 each to public. In the terms of issue, these debentures are redeemable after 10 months ending on 31st January, 2022. These debentures will be shown in balance sheet as on 31st March, 2021 under the heading:

• A. Long-Term Liability
• B. Current Liability
• C. Fixed Assets
• D. Current Assets

Hint:

Always check the "distance" between the Balance Sheet date and the maturity date.
• $> 12$ months = Non-current Liability.
• $\le 12$ months = Current Liability. Even if a debenture was originally issued for 10 years, in its final year, it "moves" into the Current Liability section.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
The classification of liabilities in a Balance Sheet depends on the time remaining until settlement relative to the reporting date.
Under Schedule III of the Companies Act, 2013, a liability is classified as "Current" if it is expected to be settled within 12 months after the reporting period or within the company’s operating cycle.
Step 2: Detailed Explanation:
First, we analyze the timeline:
- Reporting Date: 31st March, 2021.
- Redemption Date: 31st January, 2022.
- Time Remaining: From 31st March, 2021 to 31st January, 2022 is exactly 10 months.
Since the debentures are due for redemption within 10 months from the date of the Balance Sheet (which is less than the standard 12-month threshold), they can no longer be classified as Long-term Borrowings.
Instead, they must be shown under the heading of Current Liabilities, specifically under the sub-heading "Other Current Liabilities" as "Current Maturities of Long-term Debt".
Step 3: Final Answer:
The debentures will be classified as a Current Liability.