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Disclosure

CA SHAFI SIDDIQUI (Ca in Practice) (228 Points)

23 December 2010

A company XYZ Ltd had raised 8.5 % Rs 50 Cr Debt from Financial Institutions. Against the same, the security offered was immovable and movable property worth Rs 35.36 Cr. The Management made the following disclosure:

Secured Loans
8.5% Loan from FI Rs 35.36 cr

Unsecured Loans
8.5% Loan from FI Rs 14.64 cr

Is the disclosure of the company correct?

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3 Replies

sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 23 December 2010

In my view it is correct since the balance portion is un secured

Madhusudan Kabra (knowledge seeker) (1779 Points)
Replied 23 December 2010

In my opinion above disclosure in not appropriate because the security offered is to cover full debt amount (not any specific part i.e. 35.36 Crore )even it is lesser.

Example :

For a while if we consider the above discolure as correct then the intrepretation of user of Financial statement will be like this :

If any default made in payment of loan of35.36 Cr., the bank can sell out the property held as security .Where in case, any default made in 14.64 Crs' loan, bank can not perform such action because it is unsecured.

The above disclosure will mislead the stakeholders of companies. therefore it is not correct

Regards

M.S. Kabra