Classification of FDOD

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This discussion explores the classification of overdrafts (ODs) taken against Fixed Deposits (FDs). Generally, ODs are considered short-term liabilities and current liabilities. However, if an OD against an FD extends beyond one year, it may be reclassified as a long-term liability, as it impacts the business beyond the current financial year. The rationale is that liabilities are classified based on their expected settlement period, with anything due within 12 months being current and anything due after being non-current.

amitha shetty a

amitha shetty a (Querist)
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11 April 2020 How to classify OD taken against FD
If we take OD against FD who's tenure is more than 1 year then can we classify this OD in Long Term Loan.in the financials.

Eswar Reddy S

Eswar Reddy S (Expert)
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17 April 2020 OD taken against FD should be considered as current liability.. Short term loan..

Eswar Reddy S

Eswar Reddy S (Expert)
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17 April 2020 OD taken against FD should be considered as current liability.. Short term loan..

Eswar Reddy S

Eswar Reddy S (Expert)
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17 April 2020 You have option withdraw FD and meet the expenses.. It might be emergency ,so you might have taken OD against FD upto 90% .It may vary for different banks.

Eswar Reddy S

Eswar Reddy S (Expert)
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17 April 2020 Again there will be audit query.. OD interest is 1% more than FD interest .Then why you have taken OD instead of withdrawing it?? You can transfer amount from bank account to OD once the purpose is met if it was for temporary emergency

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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05 May 2020 OD is generally offered for a period 12 months or less and renewed yearly with mutual agreement. But in your case as you have taken OD for more then 1 year so, it does not remains a short term liability anymore. It becomes a long term liability as it is affecting the business for more then the current financial year.

As per general accounting practice An overdraft is deemed a short term loan and is classified as Current Liability in the Balance Sheet. Like wise the portion of a loan payable within the next 12 months is Current Liability while that payable after 12 months is long term liability.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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25 May 2020 Liabilities may be classified into Current and Non-Current. The distinction is made on the basis of time period within which the liability is expected to be settled by the entity.

Current Liability is one which the entity expects to pay off within one year from the reporting date.

Non-Current Liability is one which the entity expects to settle after one year from the reporting date.

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