(a)Is management's intent enough to support the long-term classification of the obligation in this situation?
According to IAS guidelines, the company can exclude the short-term obligations from the current liabilities only if:
It intent to refinance the obligation on a long-term basis
It has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date
Here, the intent of the management will be classified as enough, only if the entire process of refinance is complete before the year-end, i.e. 31st December, 2017. Therefore, if the company has completed the process post this date, then the management do not have have an unconditional right to defer settlement of the obligation at year end, and then, it must report the amount as the current liability.
(b) Assume that Dumars Corporation issues $13,000,000 of 10-year debentures to the public in January 2018 and that management intends to use the proceeds to liquidate the $10,000,000 debt maturing in March 2018. Furthermore, assume that the debt maturing in March 2018 is paid from these proceeds prior to the issuance of the financial statements. Will this have any impact on the balance sheet classification at December 31, 2017? Explain your answer.
No. Since, the entire refinancing process is completed after December 31st, 2017, the company is required to report the debt amount under long-term debt on the balance sheet and its current portion under current liability.
(c)Assume that Dumars Corporation issues common stock to the public in January and that management intends to entirely liquidate the $10,000,000 debt maturing in March 2018 with the proceeds of this equity securities issue. In light of these events, should the $10,000,000 debt maturing in March 2018 be included in current liabilities at December 31, 2017?
Yes, since the refinancing is done after December 31, 2017, the company should report the current portion of the debt as current liabilities because at the time of reporting, the company do not have an unconditional right to defer settlement of the obligation.
d) Assume that Dumars Corporation, on February 15, 2018, entered into a financing agreement with a commercial bank that permits Dumars Corporation to borrow at any time through 2019 up to $15,000,000 at the bank's prime rate of interest. Borrowings under the financing agreement mature three years after the date of the loan. The agreement is not cancelable except for violation of a provision with which compliance is objectively determinable. No violation of any provision exists at the date of issuance of the financial statements. Assume further that the current portion of long-term debt does not mature until August 2018. In addition, management intends to refinance the $10,000,000 obligation under the terms of the financial agreement with the bank, which is expected to be financially capable of honoring the agreement.
(1)Given these facts, should the $10,000,000 be classified as current on the balance sheet at December 31, 2017?
Yes. Since no refinancing agreement was completed at December 31st, 2017,company should classify the current portion of the debt as the current liability on the balance sheet
(2)Is disclosure of the refinancing method required?
Refinancing itself is a new requirement and requires appropriate disclosure
