Accountancy Test - 19

Bank overdraft and cash credit are indeed classified as short-term borrowings in a company's balance sheet. This classification is due to their nature as financial tools that provide immediate funds for a short period, typically less than one year.

• These facilities allow companies to access funds quickly and manage cash flow.
• Since they are expected to be repaid within a short timeframe, they fall under current liabilities.
• This categorisation is standard practice in financial accounting.

It is included under non-current liabilities.

Calls-in-advance are amounts received by a company before they are due. These are considered as liabilities because the company owes these amounts to shareholders.

• In the balance sheet, these are shown under current liabilities.
• Specifically, they appear in the sub-head other current liabilities.

Deferred tax liabilities

Financial statements are crucial tools for company owners as they offer valuable insights into various aspects of the business.

• They report management performance by detailing financial results, helping owners assess how well the company is being run.
• They reveal gaps between management performance and ownership expectations, allowing owners to identify areas needing improvement.

Thus, both aspects are correct, making the statements highly beneficial for company owners.

Public deposits are long-term borrowings so they are included under the head non-current liabilities.

Unclaimed dividends are amounts that have been declared by a company but not yet paid to shareholders. These funds need to be recorded as a liability in the company's balance sheet.

• Unclaimed dividends are classified under other current liabilities.
• This classification helps ensure that the company acknowledges its obligation to pay these amounts to shareholders.
• Recording them as current liabilities indicates they are expected to be settled within a year.

The interest accrued and due on secured loans falls under current liabilities. This is because:

• It represents an obligation that a company needs to settle within a year.
• This liability is typically recorded as an amount due for payment in the short term.

The statement is true. A debenture redemption reserve is shown on the balance sheet under:

• The head 'shareholders' funds'
• The sub-head 'reserves and surplus'

This reserve is created to ensure the company has sufficient funds to redeem its debentures when they mature.

Current liabilities are debts or obligations that a company needs to pay off within a year. They are crucial for assessing a company's short-term financial health.

• Examples include accounts payable, short-term loans, and taxes owed.
• These liabilities are important for understanding how well a company can meet its immediate financial obligations.