1.10 - Query

Classification of “Current Liabilities” and “Secured
Loans” in Accounts.

In connection with the audit of a Balance Sheet of a limited company as at 30-6-1962 I came across an item “Interest Accrued on Secured Loan Rs. 15,750/-“ shown under “Current Liabilities” as a separate item. On enquiry, I find that the Bankers apply interest to the cash credit account only half-yearly i.e. on 30th April and 31st October each year as per the terms on which the accommodation was granted. I would like you to let me have your considered opinion if the above item is correctly shown in the Balance Sheet as at 30-6-1962 or would you like it to be shifted and shown under “Secured Loans from Bankers” in the inner column and extend the total liability to the Bank as at that date to the outer column, the reason being that the interest is accruing day to day and the amounts are payable on demand as per the Pro-Note executed by the Company whether or not interest was applied and are fully secured by the deposit of the title deeds of the Company’s properties.

Opinion , December 12, 1962

Interest on bank borrowing may accrue from day to day, but such interest is not due until it is demanded by the Bank or until the amount is debited in the account of the constituent. In view of this, the Committee was of the view that interest accrued on loans under the circumstances described by the members, was correctly shown under the heading “Current Liabilities” as it was not then due, and should not be included under the heading “Secured Loan”.