Breach of loan covenants: classification of the debt in the balance sheet

At the reporting date, an organisation was in breach of the covenants under a long-term loan agreement. The bank therefore has the right to demand early repayment of the entire loan.

The question

After the reporting date, but before the financial statements were prepared, the bank waived early repayment. The question is whether the loan can be presented as non-current in the balance sheet.

The answer

Under Federal Accounting Standard FSBU 4/2023, a liability is classified as current if, at the reporting date, the organisation does not have an unconditional right to defer its settlement for at least 12 months after the reporting date.

At the reporting date the covenants had been breached, and the bank had not yet granted a legally binding waiver of early repayment. The loan is therefore presented in full within current liabilities in the balance sheet.

A waiver of early repayment received from the bank after the reporting date does not change the classification of the debt.