Accounting (Basics) - Lecture 10
ACCOUNTING CONCERNING LONG-TERM BORROWED CAPITAL AND RESERVES (PROVISIONS). OBLIGATION EMISSION AND
LONG-TERM BANK CREDITS.

Content
nAccounting concerning long-term borrowed capital and reserves (provisions).
nObligation emission and long-term bank credits.
n
2

Long-term borrowed capital
nThis category of long-term borrowed capital includes two large groups:
n
nReserves (provisions)
nLong-term liabilities (long-term bank loans and other long-term liabilities)
3

Long-term borrowed capital
nA criterion of how borrowed capital shall be divided is the one-year time interval. nWhat is kept
as long-term liabilities in the books are those with a maturity period over one year as of
emergence.
n
4

Long-term borrowed capital
nAs the accounting is to be closed and these liabilities posted in the balance sheet, attention
must be paid to the fact that time is running and there always comes the moment when the liability
is to be paid in less than one year. nIf the balance sheet shall give a true and correct view of
the state of such a liability, the liability must be posted in this period as a short-term
liability.
n
5

Reserves (provisions)
nIf a business expects a future one-time large expense that can have a negative impact on profit,
then such business shall build up reserve (provision) for such an expense throughout several
accounting periods in advance. nReserves (provisions) belong to long-term borrowed capital (they
represent external sources of corporate assets) to be used for covering specific expense items and
risks related to business activities.
n
6

Long-term liabilities
nLong-term liabilities are divided into:
n
qlong-term bank loans,
qother long-term liabilities,
qdeferred tax (both the liability and receivable are accounted in this group)
n
7

Long-term bank loans
nThese loans differ from short-term bank loans in the maturity period. nThese loans are accounted
as Long-term bank loans and a maturity period exceeding one year must have been agreed for these
loans. nHere, also long-term liabilities towards the bank from a discounted loan are accounted.
n Analytical accounts are maintained based on the loans used.
n
8

Other long-term liabilities
nThese liabilities are mature in more than one year and stem from business and capital operations.
n
9

Other long-term liabilities
nThey are accounted as Long-term liabilities and defined as the following categories for separate
accounts:
qLong-term liabilities – controlling and controlled person: expresses mutual relations between
controlled and controlling persons. In the majority of cases these are long-term loans.
qLong-term liabilities – significant influence: expresses mutual relations among entities under
significant influence and applying this influence (mostly loans).
10

Other long-term liabilities
nThey are accounted as Long-term liabilities and defined as the following categories for separate
accounts:
qIssued bonds – long-term bonds, accounted correlatively with the emergence of the receivable in a
similar way as short-term due securities
qLiabilities from rental stemming from a business renting premises
qLong-term advances received from clients prior to meeting an obligation
11

Other long-term liabilities
nThey are accounted as Long-term liabilities and defined as the following categories for separate
accounts:
qLong-term notes payable – here own notes and notes received from third parties with a maturity
over one year are accounted and interest deferred, if any
qOther long-term liabilities – these liabilities cannot be classified into above categories.
Investments into the company from a silent partner are accounted here, for example.
n
12

Deferred tax
nDeferred tax liability and receivable does not cover the relation to the revenue office, but is
used for tracking deferred tax amounts stemming from temporary differences between the tax and
accounting views of the income tax calculation.
13

Deferred tax
nA deferred tax liability emerges whenever the tax duty calculated in accordance with tax aspects
is lower than the duty determined under accounting rules, is debited from account Income tax on
ordinary income – deferred and credit to account Deferred tax liability. nIf, on the contrary, the
calculation results in a deferred tax liability, it is accounted in same accounts, but on opposite
sides.
n
14