{"id":46912,"date":"2023-09-27T06:04:19","date_gmt":"2023-09-27T06:04:19","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=46912"},"modified":"2026-03-24T18:10:40","modified_gmt":"2026-03-24T18:10:40","slug":"non-current-liabilities","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/non-current-liabilities\/","title":{"rendered":"Non-current Liabilities"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which of the following is least likely a way through which deferred tax liabilities may arise?\",\n    \"text\": \"Which of the following is least likely a way through which deferred tax liabilities may arise?\\n\\nA. A company has prepaid its taxes.\\n\\nB. Including profits from subsidiaries that have not yet been distributed and not taxed yet at later periods.\\n\\nC. Some expenses are included in taxable income in earlier periods than for financial statement net income.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A.\\n\\nIf a company has prepaid its taxes, this results in a deferred tax asset, not a deferred tax liability.\\n\\nOptions B and C are incorrect because both situations create deferred tax liabilities. In B, undistributed subsidiary profits may be taxed in the future. In C, recognizing expenses earlier for tax purposes than for financial reporting creates taxable temporary differences that lead to deferred tax liabilities.\"\n    }\n  }\n}\n<\/script>\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/pHobAPJRRAo\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>Non-current liabilities refer to all liabilities that are not classified as current. Common types of non-current liabilities are long-term financial liabilities and deferred tax liabilities.<\/p>\n<h2><strong>Long-Term Financial Liabilities<\/strong><\/h2>\n<div class=\"flex flex-grow flex-col max-w-full\">\n<div class=\"min-h-[20px] text-message flex flex-col items-start gap-3 whitespace-pre-wrap break-words [.text-message+&amp;]:mt-5 overflow-x-auto\" data-message-author-role=\"assistant\" data-message-id=\"17f03ed5-54ea-4e45-bf51-cb69f185a770\">\n<div class=\"markdown prose w-full break-words dark:prose-invert light\">\n<p>Common types of long-term financial liabilities are bank loans and fixed-income securities issued to investors, such as notes or bonds payable.<\/p>\n<p>These liabilities, including loans payable and bonds payable, are typically reported at amortized cost on the balance sheet. When a bond reaches maturity, its amortized cost (carrying amount) will match its face value.<\/p>\n<h4><strong>Examples: Illustrating Reporting of Long-Term Liabilities<\/strong><\/h4>\n<p><strong>Bonds Issued at par value: <\/strong>&nbsp;if a corporation issue bonds worth USD 8,000,000 at face value, they are recorded as a long-term liability of USD 8 million. From the issuance date to the maturity date, the carrying amount (amortized cost) remains at USD 8 million.<\/p>\n<p><strong>Bonds issued at a discount: <\/strong>if a company issues bonds worth USD 8,000,000 at 98 percent of face value (at a discount), the bonds are recorded as a liability of USD 7,840,000 (\\(=\\frac{8,000,000}{100}\\times 98\\)) at the issuance date. Throughout the bond&#8217;s life, the discount of USD 160,000 (= 8,000,000 -7,840,000)&nbsp; is amortized, so the bond will be reported as a liability of USD 8,000,000 at maturity. Similarly, any bond premium would be amortized for bonds issued at a price above par value.<\/p>\n<p>In some situations, liabilities like company-issued bonds are reported at fair value. These situations include financial liabilities held for trading, derivatives that are liabilities for the company, and certain non-derivative instruments, such as those hedged by derivatives.<\/p>\n<h2><strong style=\"color: initial;\">Deferred Tax Liabilities<\/strong><\/h2>\n<p>Deferred tax liabilities arise from temporary differences in timing between taxable income (company&#8217;s reported income for tax purposes) and its reported income (reported income for financial statement purposes). In other words, deferred liabilities occur when the taxable income and the corresponding income tax payable are less than the reported financial statement income before taxes and the related income tax expense.<\/p>\n<p>Deferred tax liabilities represent the amounts of income taxes that will be payable in future periods due to taxable temporary differences. Recall that the deferred tax asset is a prepaid tax created when unearned revenue is included in taxable income earlier than in reported income.<\/p>\n<p>Typically, deferred tax liabilities emerge when certain expenses are recognized in taxable income earlier than in the financial statement net income leading to taxable income that is less than income before taxes in earlier periods, and thus resulting in taxes payable based on taxable income being less than the income tax expense based on accounting income before taxes. The difference between taxes payable and income tax expense creates a deferred tax liability.<\/p>\n<p>For instance, deferred tax liability may occur when companies apply accelerated depreciation methods for tax purposes and straight-line depreciation methods for financial statement purposes. Additionally, deferred tax liabilities can also arise when some income is included in taxable income in later periods, such as undistributed profits from a company&#8217;s subsidiary that have not yet been taxed.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<blockquote>\n<h2>Question<\/h2>\n<p>Which of the following is <em>least likely<\/em> a way through which deferred tax liabilities may arise?<\/p>\n<ol type=\"A\">\n<li>A company has prepaid its taxes.<\/li>\n<li>Including profits from subsidiaries have not yet been distributed and not taxed yet at later periods.<\/li>\n<li>Some expenses are included in taxable income in earlier periods than for financial statement net income.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p><strong>A is correct<\/strong>. If a company has prepaid its taxes, this will result in a deferred tax asset.<\/p>\n<p><strong>B and C are incorrect<\/strong>. Both these scenarios will result in a deferred tax liability.<\/p><\/blockquote>","protected":false},"excerpt":{"rendered":"<p>Non-current liabilities refer to all liabilities that are not classified as current. Common types of non-current liabilities are long-term financial liabilities and deferred tax liabilities. Long-Term Financial Liabilities Common types of long-term financial liabilities are bank loans and fixed-income securities&#8230;<\/p>\n","protected":false},"author":7,"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-46912","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>Non-Current Liabilities and Long-Term Obligations<\/title>\n<meta name=\"description\" content=\"Learn what non-current liabilities are, including long-term obligations and deferred tax liabilities, and how they are reported in financial statements.\" \/>\n<meta name=\"robots\" content=\"index, follow, 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