Question

Question: What evidence is necessary to demonstrate the ability to defer settlement of short-term debt?

Short answer

Answer

The ability to defer settlement of short-term debt can be demonstrated by entering into a financing agreement that allows the firms to refinance the debt on a long-term basis on conditions that are easily ascertainable before the next reporting date.

Step-by-step solution

Meaning of Short-term Debt

Short-term debt is, also termed current liabilities, is a company’s financial obligations that are anticipated to be paid off in a year. Examples of short-term debt are accounts payable, wages, and income tax payable

Settlement of short-term debt

In case of deferring settlement of short-term debt, the company should demonstrate the evidence by excluding short-term debt from current liabilities and including such short-term debt as a non-current liability. The refinancing amount should be excluded, which is presented within short-term debt, from current liabilities and should list it as a non-current liability.