Question

How should a debt callable by the creditor be reported in the debtor’s financial statements?

Short answer

Debt that is callable by the creditor should be grouped under current liability.

Step-by-step solution

Meaning of Financial Statements

Financial statements are the statements prepared by all forms of business organizations to ascertain the result of operating, financial and investment activities and to know the financial position on the date of closing of books of accounts.

Reporting of debtor’s financial statements

It is necessary to segregate debt as current as it is assumed that the existing working capital will be used to repay the loan. Liabilities usually become redeemable by the creditor in case of breach of the debt agreement. However, if it can be anticipated that the breach will be corrected within the trial period stipulated in these agreements, the debt may be listed as non-current.