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: –
- Mortgage Loan
- Long Term Loans
- From Banks
- From Financial Institution
- From Partners or investors
- Security Deposit
Importance of Non Current Liabilities: –
Non-current liabilities play a vital role in every new growing business. These are shown as follows: –
- Expansion of business without sacrificing a share of profit
- Fix Rate of interest
- Easy to raise as compared with equity or preference shares.
- 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, _______
|Cash in hand
|Cash at Bank
|Short term loans
|long terms loans
|Add: Net profit
| interest on Capital
|Plant & machine
|Furniture & fixture
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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