Module: General Practice
Q119: When calculating the Current Ratio for working capital assessment, which of the following is strictly NOT classified as a Current Liability?
✅ Correct Answer: D
Concept: Current Liabilities (CL): Obligations payable within one year.
This includes Trade Creditors, Short-term provisions, and Term Loan installments falling due in the next year.
Why D is the Exception: If Unsecured Loans from friends or family are kept in the business on a long-term basis and are subordinated to the bank (meaning the borrower agrees not to repay them while the bank loan is active), banks classify them as Quasi-Equity (Long Term Source) rather than a Current Liability.
This treatment improves the Current Ratio and Net Working Capital.
This includes Trade Creditors, Short-term provisions, and Term Loan installments falling due in the next year.
Why D is the Exception: If Unsecured Loans from friends or family are kept in the business on a long-term basis and are subordinated to the bank (meaning the borrower agrees not to repay them while the bank loan is active), banks classify them as Quasi-Equity (Long Term Source) rather than a Current Liability.
This treatment improves the Current Ratio and Net Working Capital.