Accounting – 7.1 Accounting principles | e-Consult

The accounting treatment of the loan needs to be changed from a current liability to a non-current liability. This is because the company is now certain it will be unable to repay the loan within the next 12 months. The classification of liabilities depends on the certainty of repayment.

Consistency is important in this situation for the following reasons:

• Accurate Financial Position: Changing the classification of the loan reflects the company's current financial position more accurately. If the loan is consistently treated as a current liability, the financial statements will not accurately reflect the company's long-term obligations.
• Comparability: If the company consistently classifies loans with a repayment period of over 12 months as non-current liabilities, it allows for better comparison with other companies that also use this classification.
• Reliability: Consistent application of accounting principles enhances the reliability of the financial statements. A change in classification without a clear justification could raise questions about the accuracy of the financial information.