Current Part of Long-Term Debt (CPLTD) Definition

What is the current portion of long-term debt?

Current Share of Long-Term Debt (CPLTD) refers to a company’s share balance sheet which records the total amount Long-term liabilities payable within the current year. For example, if a company owes a total of $100,000 and of that $20,000 is due and must be repaid in the current year, it would record $80,000 as long-term debt and $20,000 as CPLTD.

The central theses

  • The current portion of long-term debt (CPLTD) is that portion of a long-term liability that falls due within the next twelve months.
  • The CPLTD is isolated on the company’s balance sheet because it must be settled with highly liquid assets such as cash.
  • The CPLTD is an important tool for creditors and investors to determine whether a company will be able to pay its short-term debt as it falls due.

Current portion of long-term liabilities

Current portion of long-term debt explained

When you read a company’s balance sheet, creditor and investors Use Current Long-Term Debt Fraction (CPLTD) to determine if a company has sufficient debt liquidity to meet its short-term obligations. Prospects compare this amount with the company’s current amount Cash and cash equivalents to measure whether the entity is actually able to make its payments when due. A company with a large amount in its CPLTD and a relatively small one financial situation has a higher default risk, or fail to repay their debts on time. As a result, lenders may choose not to offer further credit to the company and investors may sell their shares.

Current debt vs. long-term debt

Businesses classify their debt, also called liabilities, as current or non-current. Current Liabilities are those that accrue to a business and are paid within the current year, such as E.g. rent payments, outstanding invoices to suppliers, labor costs, utility bills and other operating costs. Long-term liabilities Loans or other financial obligations with an amortization period of more than one year. When payments on long-term debt eventually fall due within the next annual frame, that debt becomes current debt and the entity recognizes it as CPLTD.

Special considerations

If a company wants to keep its debt classified as long-term, it can convert its debt into loans balloon payments or instruments with later due dates. Suppose a company has $100,000 in long-term debt. His CPLTD is estimated at $10,000 for next year. However, in order to avoid recording this amount as a current liability on its balance sheet, the company can take out a loan with a lower interest rate and a balloon payment due in two years. As a result, its CPLTD will not increase.

In other cases, long-term debt can be automatically converted to CPLTD. For example, if a company a Federation the lender can reserve the right to call in the entire loan on his loan. In this case, the amount due is automatically converted from long-term debt to CPLTD.

Record the CPLTD

To illustrate how companies take on long-term debt, imagine a company takes out a $100,000 loan that is payable over five years. It records a balance of $100,000 below that Accounts Payable some of its long-term debt, and it takes a $100,000 charge to balance the books. At the beginning of each tax year, the company moves that year’s portion of the loan to the current liabilities section of the company’s balance sheet.

For example, if the company has $20,000 in payments for the year, the long-term debt amount will decrease and the CPLTD amount on the balance sheet will increase by that amount. As the company repays the debt each month, it decreases CPLTD with a debit and decreases cash with a credit.

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