Vinu: Hey Manu, I was going through a CMA report, and I noticed something strange. The principal repayment of a term loan for the next 12 months is usually treated as a current liability. But what if the ABS (Audited Balance Sheet) shows the entire loan being repaid in the next 12 months, even though that's not what the repayment schedule says? Should the entire loan be classified under current liabilities in this case?

Manu: Good observation, Vinu. The general practice, as you mentioned, is to treat only the principal repayment due in the next 12 months as a current liability. However, if the ABS incorrectly shows that the entire loan is due for repayment within the next 12 months, it creates a mismatch with the actual repayment schedule.

Vinu: So, in that scenario, should the entire loan be captured as a current liability?

Manu: Ideally, no. Only the portion of the loan that is scheduled to be repaid in the next 12 months should be classified as a current liability, even if the ABS mistakenly reflects the full loan as payable within the year. The ABS might be reflecting it incorrectly, but for the CMA report, we should stick to the actual repayment terms.

Vinu: Got it. But what should be done in such a case where the ABS is showing incorrect information?

Manu: In such cases, it’s important to get clarification or rectification from the company’s finance team or the auditors. If it's not possible to amend the ABS, then a note should be added in the CMA report to explain the discrepancy. You can mention that the repayment schedule shows only a portion of the loan as due, and the rest should be classified as long-term.

Vinu: That makes sense. So, basically, even if the ABS shows the entire loan as repayable, we should ensure the CMA reflects the actual scheduled repayments?

Manu: Exactly. The CMA report is about presenting a realistic financial position, so you need to follow the correct repayment schedule. Just be sure to add an explanation for the inconsistency, so that whoever reviews the report understands the situation.

Vinu: Thanks, Manu! That clears things up. I'll make sure to stick to the repayment schedule and document the discrepancy.