Correct Traeatment of Current Portion of Long Term Debt

[Jawad]

Dear All,

I need some suggestion about Correct Treatment of Current Portion of Long Term Debt.

My client acquired Demand Finance of Rupees 20,000,000/- PKR (Twenty Million only) from a Bank for three year.
I make their projection how Company Payback their Long Term Loan. Company will payback Principal in three Installment.
1st Installment of Rs 7.00M after 1yr
2nd Installment of Rs 7.00M after 2 yr
3rd Installment of Rs 6.00M after 3yr.

When he submitted these projection in Bank They argue that "The balance sheets of the projections are not depicting the two long term debts correctly".

Could you Please Suggest me what is wrong in these projection. Picture attached!

 

[Steve-LevelUp]

I think what you are missing is that the total debt is $20m. The short term + long term debts cannot exceed (or be lower than) total actual debt. In this case, your 2017 is showing $27m, 2018 - $20m, and 2019 is $6m.

If the payment agreement is actually what you have stated above then the balances will be as follows

2017 - $7m short term, $13m long term
End of 2017 - $7m payment
2018 - $7m short term - $6m long term
end of 2018 - $7m payment
2019 -- $6m short term - $0 long term
end of 2019 - $6m payment
no further liability.

I hope this helps.

 

[Jawad]

Thanks For Your Suggestion!!

I think what you are missing is that the total debt is $20m. The short term + long term debts cannot exceed (or be lower than) total actual debt. In this case, your 2017 is showing $27m, 2018 - $20m, and 2019 is $6m.

If the payment agreement is actually what you have stated above then the balances will be as follows

2017 - $7m short term, $13m long term
End of 2017 - $7m payment
2018 - $7m short term - $6m long term
end of 2018 - $7m payment
2019 -- $6m short term - $0 long term
end of 2019 - $6m payment
no further liability.

I hope this helps.[Thanks for Your Suggestion]