Non Current liabilities - Explained with Examples

Non Current liabilities are the type of debts which is payable over a term exceeding one year. These debts are better known as Fixed or long-term liabilities. These type of liabilities are taken to achieve the long term goal of business or organisation.

For Examples: -

• Debenture
• Mortgage Loan 
• Long Term Loans
  • From Banks
  • From Financial Institution
  • From Partners or investors
• Security Deposit 
  • Vendors
  • Customers

Importance of Non Current Liabilities: -

Non-current liabilities play a vital role in every new growing business. These are shown as follows: -

1. Expansion of business without sacrificing a share of profit
2. Fix Rate of interest
3. Easy to raise as compared with equity or preference shares.
4. Simply repayable

1. Expansion of business without sacrificing a share of profit:

As explained above Non current liabilities are the type of long term loans, So business has to pay a little amount of interest to money lender not share of the business. In Equity, the business has to provide a share of the profit of the business. If our business is very much profitable then we have to select the option of the long term debts rather then equity.

2. Fix Rate of interest

The business has to provide only a fix rate of interest on the borrowed amount of debt. So it is very easy to pay if the business is in profit.

3. Easy to raise as compared with equity or preference shares.

The long term loans like a bank loan are easy to raise from the financial institution for profitable businesses because of business shows their profitability.

4. Simply repayable

The long terms debts are very easy to repayment. The business can repay it any time to the financial institution but in Equity, you have to buy back it from the share market. It is a long process.

Placement of Non Current Liabilities in the balance sheet: -

The placement of non current liabilities in the balance sheet will be shown under the group head non current liabilities. These are shown in the following format of the balance sheet and highlighted with orange colour: -

Name of the Entity

Balance Sheet as on 31st March, _______
Liabilities	Amount	Assets	Amount
Current Liabilities		Current Assets
Trade Creditors		Cash in hand
Bills Payable		Cash at Bank
Outstanding Expenses		Inventories
Advance/Unearned Incomes		Bills payable
Short term loans		Sundry Debtors
Non-Current Liabilities		Prepaid Expenses
long terms loans		Accrued Incomes
Debentures		Fixed/Non-Current Assets
Capital		Building
Add:  Net profit		Land
interest on Capital		Plant & machine
Less:  Drawings		Furniture & fixture
Net Loss		Goodwill

You can also read the following topics : -

• Assets - Meaning, Definition, Types and Examples
• Liabilities - Meaning, Types and Examples
• What is Capital - Meaning and Example

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