Breach of Loan Covenant – Adjusting Event?

Carve outs in Ind-AS

When an entity breaches a provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand, an agreement by the lender after the reporting period and before the authorisation of the financial statements for issue not to demand payment is not considered as an adjusting event under IFRS. Accordingly, a long-term borrowing may be classified as current.

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However, under Ind-AS, in such a case of breach of a long-term loan arrangement before the end of the reporting period, the agreement by lender before the approval of the financial statements for issue not to demand payment as a consequence of the breach, will be considered as an adjusting event. Accordingly, a long-term borrowing will continue to be classified as non-current in spite of the fact that on the reporting date, it was payable on demand.

This is one of the carve-outs set out under Ind-AS.

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