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Dear Mike,
I am not fully convinced with the answer of question .
It is expected to be settle within 12 months next following the current accounting year end.
Should this be classified as No current Liability. If not could you please help to understand why?
Thanks
Gabriella
Have you misread the question?
“Which of the following would NOT necessarily lead ….”
Hello Mike,
Back to my original question, sorry for delay reply.
I have found a similar question on BBP exam kit so I will use it to explain what I meant above.
Which of the following would not necessarily lead to a liability being classified as a current liability?
A. The liability is expected to be settle in the course of the entity’s normal operating cycle.
B. The liability has arisen during the current accounting period
C. The liability is held primarily for the purpose of trading
D. The liability is due to be settle within 12 months after the end of reporting period.My answer was C as I counted that Loan is a liability which is held for a purpose of the trading. Probably I have miss understood the meaning of “Purpose of Trading”. If so, could you please explain it to me.
The correct answer is B. Now my question is: if the liability that has arisen is for the purpose of trading, should it be considered as current liability? (as per statement C)The answer B does not specify the purpose of the liability. Am I right saying that?
Once again, thanks for your help.
Best Regards
Gabriella
“B. The liability has arisen during the current accounting period
C. The liability is held primarily for the purpose of trading”Answer B – a liability that has arisen this year could be, for example, a loan repayable in 20 years’ time so, in that situation, it would ot be classified as a current liability
“… for the purpose of trading” suggests the ordinary operating cycle where the word “trading” involves buying and selling in the ordinary course of business
Thus, a liability that is “… held primarily for the purpose of trading” relates to the day to day on going activities of the entity
OK?
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