Non-Current Liabilities are the company’s obligations that are expected to get paid after one year, and the examples of which include:

  • Long-term loans and advances.Long-term lease obligations.Deferred revenue.Bonds payable.Other Non-Current Liabilities.

List of Non-Current Liabilities with Examples

Non-Current Liabilities are those sets of liabilities taken to undertake capexCapexCapex or Capital Expenditure is the expense of the company’s total purchases of assets during a given period determined by adding the net increase in factory, property, equipment, and depreciation expense during a fiscal year.read more. Its maturity is beyond 12 months from the reporting date

Let’s look at the complete list of non-current liabilities with Examples.

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#1 – Long Term Borrowings

Long Term Borrowings are the acceptance of the funds for the need for meeting capital expenditure and making strategic decisions. Therefore, such funds need to be utilized judiciously and only for the purpose for which it was borrowed—moreover, such funds are to be disclosed at amortized cost per the requirement of IFRS 9.

#2 – Secured/Unsecured Loans

The basic difference between Long term and Secure/Unsecured loans is that borrowings can be from anyone, from a retail investorRetail InvestorA retail investor is a non-professional individual investor who tends to invest a small sum in the equities, bonds, mutual funds, exchange-traded funds, and other baskets of securities. They often take the services of online or traditional brokerage firms or advisors for investment decision-making.read more to NBFCs. At the same time, most of the Loans will come from financial institutions against which assets will be mortgaged based on the structure set up as per the agreed terms and conditions.

#3 – Long Term Lease Obligations

Lease payments are the most fundamental and common expenditure a corporation must bear to fulfill its asset requirement. Such lease paymentsLease PaymentsLease payments are the payments where the lessee under the lease agreement has to pay monthly fixed rental for using the asset to the lessor. The ownership of such an asset is generally taken back by the owner after the lease term expiration.read more needed to be structured and framed per the IFRS and locally General Acceptable accounting practices. Moreover, the disclosure must also be verified based on the applicable regulations.

#4 – Deferred Tax Liabilities

Deferred Tax Liabilities show that one has disclosed less income in the current year than books of account, and in the future, the arising tax liabilities will be set off against the same. Deferred Tax liabilitiesDeferred Tax LiabilitiesDeferred tax liabilities arise to the company due to the timing difference between the accrual of the tax and the date when the company pays the taxes to the tax authorities. This is because taxes get due in one accounting period but are not paid in that period.read more must be created to balance the timing differences between books of account and income tax computation. The basic intent is that one cannot claim more gain in tax calculation by adopting different accounting methodsAccounting MethodsAccounting methods define the set of rules and procedure that an organization must adhere to while recording the business revenue and expenditure. Cash accounting and accrual accounting are the two significant accounting methods.read more and taking less profit to disclose to the concerned department.

#5 – Provisions

As per the matching concept of the accountingMatching Concept Of The AccountingThe Matching Principle of Accounting provides accounting guidance, stating that all expenses should be recognized in the income statement of the period in which the revenue related to that expense is earned. This means that, regardless of when the actual transaction is made, the expenses that are entered into the debit side of the accounts should have a corresponding credit entry in the same period.read more principles, all the expenses and revenues must be recognized in the year to which it is attributed. Therefore, even though the expenditure of the 1st year is incurred in the 2nd year, the expenditure of the 1st year is needed to adequately hit the targeted profit and loss account. Hence, to meet this guideline, a concept named provision is accepted under which an amount equivalent to expense will be transferred to a clearing profit and loss accountProfit And Loss AccountThe Profit & Loss account, also known as the Income statement, is a financial statement that summarizes an organization’s revenue and costs incurred during the financial period and is indicative of the company’s financial performance by showing whether the company made a profit or incurred losses during that period.read more. Hence, to meet this guideline, a concept named provision is accepted under which amount equivalent to expense will be transferred to a clearing accountClearing AccountA clearing account or wash account is a temporary account in which the funds are kept to be smoothly transferred to the required account when the transfer cannot be done directly. It helps the clients to set aside a sum of money when the transactions are in process.read more, which will be reversed next year as and when it will be incurred. Provisions may be for one year, five years, or even for more periods.

#6 – Derivative Liabilities

Current stock market data is highly flexible. One can create and arrange the transactions based on their needs and earn the gains based on the insights for any specific underlying assetsUnderlying AssetsUnderlying assets are the actual financial assets on which the financial derivatives rely. Thus, any change in the value of a derivative reflects the price fluctuation of its underlying asset. Such assets comprise stocks, commodities, market indices, bonds, currencies and interest rates.read more. The main aim of such a derivative instrument is to hedge themselves from the transaction exposure they will face in the future. Therefore, there are full chances of earning loss or profit in a derivative instrument. Derivative instrumentsDerivative InstrumentsDerivatives in finance are financial instruments that derive their value from the value of the underlying asset. The underlying asset can be bonds, stocks, currency, commodities, etc. The four types of derivatives are - Option contracts, Future derivatives contracts, Swaps, Forward derivative contracts. read more must be valued at fair value on every reporting date. Hence, on a fair valuation, if one is getting a mark to marketMark To MarketMark to Market Accounting means recording the value of the balance sheet assets or liabilities at current market value to provide a fair appraisal of the company’s financials. The reason for marking certain market securities is to give an accurate picture, and the value is more relevant than the historical value.read more negative, it will be considered derivative liabilities and need to be disclosed in a balance sheet.

#7 – Other Liabilities Getting due After 12 Months

Every company has to fulfill various types of obligations as and when getting due in business. Moreover, such obligations needed to be structured and recorded in the books of account based on the applicable financial regulation.

From the above list of non-current liabilities, we can conclude that.

Non-Current Liabilities = Long term lease obligations + Long Term borrowings + Secured / Unsecured LoansUnsecured LoansAn unsecured loan is a loan extended without the need for any collateral. It is supported by a borrower’s strong creditworthiness and economic stabilityread more + Provisions +Deferred Tax Liabilities + Derivative Liabilities + Other liabilities getting due after 12 months.

Non-Current Liabilities Example – Alphabet Inc

Let’s understand the Non-current liabilities calculation from the existing companies:

Alphabet Inc. has Long term debt of $ 3969 Mn, a Deferred RevenueDeferred RevenueDeferred Revenue, also known as Unearned Income, is the advance payment that a Company receives for goods or services that are to be provided in the future. The examples include subscription services & advance premium received by the Insurance Companies for prepaid Insurance policies etc. read more of $ 340 Mn, an Income Tax of $ 12812 Mn, and Deferred Tax liabilities of $ 430 Mn, Other Long term liabilities of $ 3059 Mn.

Calculation of  Non-Current Liabilities Example:

Non-Current Liabilities = $ 3969 Mn + $ 340 Mn + $ 12812 Mn + $ 430 Mn $ 3059 Mn

= $ 20610 Mn.

Hence Alphabet Inc. has non-current liabilities of $ 20610 Mn as of 31st Dec 2018.

Calculation of Non-Current Liabilities Example:

Non-Current Liabilities = $ 24743 Mn + $ 20975

= $ 45718 Mn

Non-Current Liabilities Example – BP Plc

BP (UK group company) has Derivative Liabilities of $ 5513 Mn+ Accrued liabilities but not Met of $ 469 Mn, +Financial debts of $ 51666 Mn + Deferred Tax Liabilities of $ 7238 Mn + Provisions of $ 20412 Mn, Defined Benefit obligation plans of $ 8875 Mn + Other payables of $ 13946 Mn as on 31st Dec 2017.

Non-Current Liabilities= $ 5513 Mn + $ 469 Mn + $ 51666 Mn + $ 7238 Mn + $ 20412 Mn + $ 8875 Mn + 13946 Mn

= $ 108119 Mn

Hence BP has non-current liabilities of $ 108119 Mn as of 31st Dec 2017.

Conclusion

Non-Current liabilities show the real burden on the company, and default may lead to the closure of the business. Hence, it is always necessary to verify the factors that can meet such obligations and hedge themselves from bankruptcy. Also, disclosing all the non-current liabilities is necessary for the prescribed format, and the standard gives valuation per the guidelines.

  • Current Liabilities ExamplesTypes of Financial LiabilitiesList of Long-Term Liabilities Liabilities in Accounting