Debentures Payable within 1 Year

Debentures are long-term debt instruments issued by companies to raise funds. They are like bonds and provide a fixed rate of interest to the holders. Debentures payable within 1 year refer to the portion of the total debenture liability that is due for repayment within the next 12 months from the reporting date.

Classification in the Balance Sheet

Debentures payable within 1 year are classified as a current liability in the balance sheet. Current liabilities are obligations that are expected to be settled within the normal operating cycle of the business or within one year from the reporting date. These liabilities are usually settled using current assets or by creating new current liabilities.

Sub Head of Balance Sheet

Within the current liability section of the balance sheet, debentures payable within 1 year can be further classified under the subhead "Current Liabilities."

Importance of Classification

The classification of debentures payable within 1 year is important as it provides information to stakeholders about the short-term debt obligations of the company. It helps investors and creditors assess the liquidity and financial health of the company. It also allows management to monitor and plan for the repayment of these liabilities within the specified timeframe.

Example

Let's consider an example to understand the classification of debentures payable within 1 year. Company ABC issues debentures worth $1 million with a maturity period of 5 years. However, $200,000 of the debentures are due for repayment within the next year. In the balance sheet, the $200,000 will be classified under the subhead "Current Liabilities" as "Debentures Payable within 1 Year."

Conclusion

Debentures payable within 1 year are a subset of the total debenture liability that is due for repayment within the next 12 months. They are classified as current liabilities in the balance sheet under the subhead "Current Liabilities." This classification is important for stakeholders to assess the short-term debt obligations of the company and for management to plan for their repayment.