Long Term Liabilities

In a financial statement, long term liabilities denote the company’s obligations, which extend beyond the present year or the present operating cycle of the company.
In most of the cases, long term liabilities refer to long-term debts, like bonds issued by the company.

Long-term liabilities require payment in more than a year’s time. They are calculated by subtracting from the fixed assets and the net current assets to indicate the net assets. Some common examples of such liabilities are:
Debentures
Mortgages
Bank loans

Types of Long-term Liabilities:
Following are the most common types of long term liabilities present on the balance sheet of a company:
Financing Liabilities: They are the debts issued either by a single or group of investor(s) or the common people. This type of debt permits the bondholders to exchange their bonds for common shares. Such permission is equally applicable on those bonds, whose issuances are combined with stock purchasing warrants. In fact, financing liabilities deal with payable notes and bonds, as well as exchangeable bonds.
Operating Liabilities: They include the following:
Paying of retirement benefits under the pension plan
Overdue income tax or other conditional obligations, like unsettled lawsuits, etc.
Contract made for the payment of rent for using property, plants or equipments, which involves some amount of risks on the part of the concerned company, as the owner

To sum up, Operating Liabilities handle issues like:
Post-retirement Benefit Obligations
Capital Lease Obligations
Other additional expenditures


Role of Long-term Liabilities:

Long-term liabilities perform a major role in the making of financial statements and reports:
Long term liabilities act as future benefits for more than a year, for exmple, payable notes which mature in more than a year’s time.
On the balance sheet of a company, long term liabilities record the liabilities of the company for repayment of bonds, leases and other relevant matters due in more than a year.
At the time of accounting, long term liabilities appear on the right half or wing of a company’s balance sheet, to represent the different sources of funds. It is these diverse fund sources which normally remain restricted in the form of capital assets.
The long term liabilities of a company are accounted for, to other parties, by its debt obligations, which last more than a year.

Investors examine long term liabilities, taking into consideration the following aspects:

  • Growth of fund
  • Re-finance the �old� debts
  • Change in the capital structure
  • Funding the operating requirements of a company

 

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Last Updated on : 2nd July 2013

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