{"id":3954,"date":"2019-10-08T13:33:00","date_gmt":"2019-10-08T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=3954"},"modified":"2025-03-15T11:03:07","modified_gmt":"2025-03-15T11:03:07","slug":"presentation-disclosures-relating-debt","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/presentation-disclosures-relating-debt\/","title":{"rendered":"Presentation and Disclosures Relating to Debt"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/r1ck8FrAMtw\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Depending on the maturity structure of a company\u2019s debt obligations, its debt (or portions of it) can be reported either in the non-current liabilities section or the current liability section of the balance sheet.<\/p>\n<p>Notes to the financial statements can also provide useful debt-related information that can assist in determining the financial health of a company and its ability to continue as a going concern.<\/p>\n<h2><strong>Financial Statement Presentation and Disclosures of Debt<\/strong><\/h2>\n<p>The non-current liabilities section of the balance sheet usually includes a single line item of the total amount of a company\u2019s long-term debt whose due date falls\u00a0 beyond one year. The portion of long-term debt that is due in the next twelve months is usually shown as a current liability.<\/p>\n<p>More detailed information on the types and nature of a company\u2019s debt is usually found in the notes to the financial statements. These note disclosures can be used to determine the amount and timing of future cash outflows. They typically include information such as the stated and effective interest rates, maturity dates, covenants, any collateral that is pledged, and the amount of scheduled debt repayments for the next five years.<\/p>\n<p>It is important to note disclosures can also be made for more complex debt contracts such as those relating to convertible debt and debt with warrants. A convertible debt gives the debt holder the option of exchanging debt for equity. Bonds issued with warrants, on the other hand, give holders the right to purchase shares of the issuer\u2019s common stock at a specific price.<\/p>\n<p>The MD&amp;A may also provide useful information about a company\u2019s capital resources, including its debt financing and off-balance-sheet financing. In the MD&amp;A, the company&#8217;s management usually provides a qualitative discussion on any material trends in capital resources and indicates any expected material changes in their mix and relative cost.<\/p>\n<blockquote>\n<h3><strong>Question 1<\/strong><\/h3>\n<p>Which of the following statements is the <em>most<\/em> accurate?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Disclosures in notes to the financial statements cannot be used to determine the amount and timing of future cash outflows.<\/li>\n<li data-tadv-p=\"keep\">Disclosures on debt typically include information such as the stated and effective interest rates, maturity dates, covenants, and any collateral that is pledged.<\/li>\n<li data-tadv-p=\"keep\">Disclosures on complex debt contracts such as those relating to convertible debt and debt with warrants are usually not made in the notes to the financial statements.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>Disclosures on debt typically include information such as the stated and effective interest rates, maturity dates, covenants, and any collateral that is pledged.<\/p>\n<p><strong>A is incorrect<\/strong> because disclosures can be used to determine the amount and timing of future cash outflows.<\/p>\n<p><strong>C is incorrect<\/strong> because disclosures on any complex debt contracts are usually made in the notes to the financial statements.<\/p>\n<h3><strong>Question 2<\/strong><\/h3>\n<p>How is \u2018debt due after more than 12 months of the preparation date of the balance sheet\u2019 disclosed?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">It is only disclosed in the footnotes of the balance sheet.<\/li>\n<li data-tadv-p=\"keep\">It is disclosed alongside \u2018debt due in less than 12 month\u2019 as a single line item.<\/li>\n<li data-tadv-p=\"keep\">It is disclosed under a separate line item, with further disclosure in the footnotes.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>C<\/strong>.<\/p>\n<p>Long term debt (due in more than 12 months) is disclosed under a separate line item on the balance sheet, and further disclosure (maturity schedule, interest rate, etc.) is made in the footnotes.<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>Depending on the maturity structure of a company\u2019s debt obligations, its debt (or portions of it) can be reported either in the non-current liabilities section or the current liability section of the balance sheet. Notes to the financial statements can&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-3954","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Debt Presentation &amp; Disclosures | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn how companies present and disclose long-term debt, including key debt covenant requirements and footnote disclosures in financial statements.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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