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   

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