What is a Non-current Liability?
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What is a Non-current Liability?
Non-current liabilities are long-term debts or financial obligations of a business. They extend beyond the current accounting period and are not required to settle within one year. Non-current liabilities reflects the company's long-term financial responsibilities and are important for understanding how a business finances, its operations, and also growth over time. Examples of non-current liabilities include; long-term loans such as bank loans or other borrowings, mortgages, which are loans secured against property, lease obligations, which are long-term rental agreements for either equipment or property and also pension obligations which are future payments to retired or to be retired employees. So let's go back to our friend Redd who runs a delivery company. Redd wants to expand their delivery company and does so by purchasing a new warehouse. The business takes out a mortgage from the bank to finance the purchase with a repayment period of 10 years. Because the mortgage is taken out with the purpose to buy a warehouse for the business, will be paid back over more than one year and is an obligation, it qualifies as a non-current liability. The only caveat is that the portion of the mortgage due in the next 12 months would be classified as a current liability with the rest remaining e.g., nine of the 10 years will be a non-current liability.
