There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): Loans and Advances that are receivable after 12 months or after the period of the Operating Cycle from the date of the Balance Sheet are shown as Non-current Assets in the Balance Sheet of a company.
Reason (R): Since the loan is receivable after 12 months or after the period of the Operating Cycle, it is not a Current Asset. An asset that is not a Current Asset is shown as a Non-current Asset as prescribed by Schedule III (Part I) of the Companies Act, 2013.
Answer & explanation
Correct answer: option 1
(i) Record a loan payable or loan receivable as a current asset or current liability if it's to be entirely repaid within the next year. Any portion of the loan that's due more than 12 months away is a long-term liability or asset.
(ii) Loans which are repayable in more than twelve months/operating cycle are classified as long-term borrowings on the face of balance sheet.
(iii) Loans repayable on demand or whose original tenure is not more than twelve months/operating cycle are classified as short-term borrowings on the face of balance sheet