Non-Current Liabilities are the obligations of the company which are expected to get paid after the period of one year and the examples of which include long term loans and advances, long term lease obligations, deferred revenue, bonds payable and other Non-Current Liabilities.
List of Non-Current Liabilities with Examples
Non-Current Liabilities are those set of liabilities that are taken with the intention of undertaking 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, and 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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For eg:
Source: Non Current Liabilities Examples (wallstreetmojo.com)
#1 – Long Term Borrowings
Long Term Borrowings are the acceptance of the funds for the need for meeting capital expenditure and making strategic decisions. Such funds are needed to be utilized judiciously and only for the purpose for which it was borrowed—moreover, such funds to be disclosed at amortized cost as per the requirement of IFRS 9.
#2 – Secured/Unsecured Loans
The basic difference between Long term borrowings and Secure/Unsecured loans is that borrowings can be from anyone, 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. While the majority 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 essential and common expenditure corporate has to bear in order to fulfill their 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 as per the IFRS and locally General Acceptable accounting practices. Moreover, the disclosure is also required to be verified based on the applicable regulations.
#4 – Deferred Tax Liabilities
Deferred Tax liabilities are needed to be created in order to balance the timing differences arising between books of account and income tax computation. The basic intent is that one cannot claim more gain in tax calculation by adopting different methods of accountingMethods Of AccountingAccounting 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. Deferred Tax Liabilities shows that one has disclosed less income in the present year, as compared to books of account, and in the future, the arising tax liabilities will be set off against the same.
#5 – Provisions
As per the matching concept of the accounting principles, all the expenses and revenues must be recognized in the year to which it is attributed. Even though expenditure of 1st year is getting incurred in the 2nd year, the expenditure of 1st year is needed to be adequately hitting the targeted profit and loss account. Hence, in order to meet this guideline, a concept named provision is accepted under which amount equivalent to expense will be transferred to 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 actually incurred. Provisions may be for 1 year, 5 years, or can be even for more periods.
#6 – Derivative Liabilities
Modern stock market data is highly flexible. One can create and arrange the transactions based on their needs and can 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 that they will be facing in the future. In a derivative instrument, there are full chances of earning loss or profit. 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 are needed to be valued at fair value on every reporting date. Hence on a fair valuation, if one is getting a mark to market negative, then it will be considered as derivative liabilities and accordingly needed to be disclosed in a balance sheet.
#7 – Other Liabilities Getting due After 12 Months
In business, there can be various type of obligations which every company has to fulfill as and when getting due. Moreover, such obligations needed to be structured and to be 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 Example – Alphabet Inc
Let’s understand the Non-current liabilities calculation from the existing companies:
Alphabet Inc. has Long term debt of $ 3969 Mn, 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, Income Tax payable of $ 12812 Mn, 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 on 31st Dec 2018.
Non-Current Liabilities Example – Amazon.com
Amazon.com, Inc. has long term debtTerm DebtLong-term debt is the debt taken by the company that gets due or is payable after one year on the date of the balance sheet. It is recorded on the liabilities side of the company's balance sheet as the non-current liability.read more of $ 24743 Mn, Other long term liabilities of $ 20975 Mn as on 31st Dec 2018.
Calculation of Non-Current Liabilities Example:
Non-Current Liabilities = $ 24743 Mn + $ 20975
= $ 45718 Mn
Hence, Amazon.com, Inc has non-current liabilities of $ 45718 Mn as of 31st Dec 2018.
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.
Calculation of Non-Current Liabilities Example:
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 on 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 with which they can meet such obligations and hedges themselves from bankruptcy. Also, the disclosure of all the non-current liabilities is very much necessary in the prescribed format, and the standard gives valuation as per the guidelines.
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