While preparing the Balance Sheet of a company, 10% debentures are shown under which head?
Answer & explanation
Correct answer: option 2
Total borrowings are categorised into long-term borrowings, short-term borrowings and current maturities to long-term debt.
(i) Loans which are repayable in more than twelve months/operating cycle are classified as long-term borrowings on the face of balance sheet.
(ii) 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.
Debentures wholly depend on the creditworthiness and reputation of the issuer and are one of the most common long-term loans. This type of bond usually has a term of 10 years or more.