Covenants to be met at the end of the period or before, or after

Learning objectives

• Distinguish covenants to be complied with on or before the end of the reporting period from those to be complied with after it.L2
• Record the reclassification of a loan as a current liability when the right to defer settlement does not exist.L2, L3

Normative references

• IAS 1 §72BFor a liability arising from a loan arrangement, the right to defer settlement may be subject to compliance with conditions of the arrangement (covenants): covenants with which the entity must comply on or before the end of the reporting period determine whether the right exists at that date, even if compliance is assessed only after the reporting period; covenants with which it must comply only after the reporting period do not affect classification at that date.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• A loan is repayable in 2029, but its covenant will only be tested at a date after the closing date: by itself, that covenant does not prevent the loan from being classified as non-current at the closing date.L2
• Cobalt SA has so far classified as a non-current liability a loan of {borrowing_amount}, repayable in 2030. The contract includes a covenant to be complied with at 31 December 2026, the closing date; it is not complied with at that date (case facts). Cobalt therefore no longer has, at the closing date, the right to defer settlement of the loan. Record the presentation entry that reclassifies the loan.L2
• At 31 December 2026, Ibis SA has two loans. Loan X ({loan_x}) complies with its covenant at the closing date; its next instalment, of {loan_x_next_instalment}, is due in 2027, and Ibis has the right to defer settlement of the balance beyond 12 months. Loan Y ({loan_y}), maturing in 2031, is subject to a covenant to be complied with at 31 December 2026, which is not complied with, with no waiver obtained at that date (case facts). Calculate the total of the loans classified as current, then the total classified as non-current.L3