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Treatment of working capital loan in balance sheet

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satya narayana

Student CA IPC / IPCC

49 Points Posted on 29 November 2013

One of the Company has availed Working Capital Loan i.e. Cash credit from their banker. As per revised schedule, Current liabilities are the liabilties

a. which are to be payable in the company's normal operating cycle

b. which are to be payable within one year from the company's reporting date.

So by taking into the consideration, is it correct to show the outstanding balance in CC A/c under the head Short term borrowings or it is required to show under Longterm Borrowings?

Replies (1)

Kolluru Krishna Murty

Partner

327 Points Posted on 03 December 2013

Dear Sir,

This is one of the issues that is being debated for long time.

Infact one of the oil companiees(cannot be named for obvious reasons)was showing Working capital Borrowing under Current Libilities and not under Secured Loans.

That apart the agrrement with the bank/banks provide for payment of such loans on demand and the security is created for current assets as well as fixed assets.Many times collateral security is created on the immovable assets and properties of Directors/Others who offer their assets on behalf of the Directors. In some cases corporate guarentee is given by companies in the same group for contracting such loans.

So going by all the above criteria the nature of loan is more of permanent nature and not a loan on demand.Accordingly it may be appropriate to classify under Longterm loans and not short term.

kkm