The total amount of the mortgage loan is divided into twelve equal monthly payments. These payments are known as principle and interest. If the rate of interest is higher, then the size of each payment becomes greater. Calculate the current portion of mortgage payable with the MS Excel Mortgage Payable calculator to know the current minimum monthly payment.
The current portion of a mortgage account is that part of the principal and interest due for payment during a particular month, which has not been paid in full. The current portion is shown as a deduction from the capital account on the balance sheet. The remainder of the balance (called the deferred or unpaid amount) due is entered into an accrual account and is carried forward until paid.
The current portion of mortgage payable is the amount that you are paying on your mortgage each month.
Calculate the current portion of mortgage payable by adding together:
-Your monthly payment (interest and principal)
-Any extra payments you’ve made since you last calculated this value
-Any previous month’s payment that was applied as a prepayment.
What Is the Current Portion of Long-Term Debt?
The current portion of long-term debt (CPLTD) refers to the section of a company’s balance sheet that records the total amount of long-term debt that must be paid within the current year. For example, if a company owes a total of $100,000, and $20,000 of it is due and must be paid off in the current year, it records $80,000 as long-term debt and $20,000 as CPLTD.
- The current portion of long-term debt (CPLTD) is the portion of a long-term liability that is coming due within the next twelve months.
- The CPLTD is separated out on the company’s balance sheet because it needs to be paid by highly liquid assets, such as cash.
- The CPLTD is an important tool for creditors and investors to use to identify if a company has the ability to pay off its short-term obligations as they come due.
Current Portion of Long-Term Debt Explained
When reading a company’s balance sheet, creditors and investors use the current portion of long-term debt (CPLTD) figure to determine if a company has sufficient liquidity to pay off its short-term obligations. Interested parties compare this amount to the company’s current cash and cash equivalents to measure whether the company is actually able to make its payments as they come due. A company with a high amount in its CPLTD and a relatively small cash position has a higher risk of default, or not paying back its debts on time. As a result, lenders may decide not to offer the company more credit, and investors may sell their shares.
Current Debt vs. Long-Term Debt
Businesses classify their debts, also known as liabilities, as current or long term. Current liabilities are those a company incurs and pays within the current year, such as rent payments, outstanding invoices to vendors, payroll costs, utility bills, and other operating expenses. Long-term liabilities include loans or other financial obligations that have a repayment schedule lasting over a year. Eventually, as the payments on long-term debts come due within the next one-year time frame, these debts become current debts, and the company records them as the CPLTD.
Special Considerations
If a business wants to keep its debts classified as long term, it can roll forward its debts into loans with balloon payments or instruments with later maturity dates. For example, assume a company has a long-term debt of $100,000. Its CPLTD is projected to be $10,000 for the next year. However, to avoid recording this amount as a current liability on its balance sheet, the business 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 debts may automatically convert to CPLTD. For example, if a company breaks a covenant on its loan, the lender may reserve the right to call the entire loan due. In this case, the amount due automatically converts from long-term debt to CPLTD.
Recording the CPLTD
To illustrate how businesses record long-term debts, imagine a business takes out a $100,000 loan, payable over a five-year period. It records a $100,000 credit under the accounts payable portion of its long-term debts, and it makes a $100,000 debit to cash to balance the books. At the beginning of each tax year, the company moves the portion of the loan due that year to the current liabilities section of the company’s balance sheet.
For example, if the company has to pay $20,000 in payments for the year, the long-term debt amount decreases, and the CPLTD amount increases on the balance sheet for that amount. As the company pays down the debt each month, it decreases CPLTD with a debit and decreases cash with a credit.
Explanation
CPLTD means that part of non-current liability which is going to mature or due within one year. For example, suppose if the company borrow $ 1,000,000 for a period of 10 years, so $ 1,000,000 is shown as Long term liability on the liability side of the balance sheet. But, if there is an obligation on the company to pay $ 100,000 within one year so this $ 100,000 is shown separately in the balance sheet as the current portion of long term debt(CPLTD) under the head current liabilities and the remaining $ 900,000 as long term liability on the liability side of the balance sheet under the head Non – current liabilities.
To check the liquidity (the ability of a company to convert the asset into cash with ease)of the organization, the parties deal with organizations like creditors, investors compare the CPLTD figure with the liquid assets (cash, bank balance) and make sure that whether the organization has adequate money or equivalent to settle down the short term liability on the due date.
If CPLTD < Liquid Assets, then it is a favorable condition. In this condition, investors may invest in the company, or creditors may provide credit to the company.
If CPLTD > Liquid Assets, then investors and creditors might be at high risk. So, in this condition, they may remove their investments from the company, and creditors may not ready to provide more credit or loans to the company.
Reducing Current Portion of Long Term Debt
Sometimes the company with a good credit rating wants to keep their liabilities as long term. So to reduce the current portion of long term liability, the company either pays the Current portion of long term debt with available cash or borrow a fresh loan at the low-interest rate and pay off the CPLTD portion.
For example, The long term liability in a company is $500,000, out of which the CPLTD portion is assumed to be $100,000.So, instead of recognizing this portion of $100,000 as a current liability, the company may borrow a fresh long term loan and settle down $100,000 immediately. In this case, CPLTD is not booked in the balance sheet, and only long term liability(existing loan + fresh loan taken to pay off the CPLTD portion of the existing loan) is recorded. Alternatively, the company may also pay the CPLTD portion with available cash. In this case, CPLTD is also not coming into the picture. This will reduce the long term liability balance on the liability side and cash balance on the asset side of the balance sheet.
Current Portion of Long Term Debt on Balance Sheet
Current portion of long term debt is shown separately from long term liability on the liability side of the balance sheet under the head current liabilities.
Suppose a company named GDS owes $500,000 at the beginning of the year for 10 years, payable in 10 installments of $50,000 per year. As $50,000 is payable within 12 months, out of $500,000, so $50,000 is booked as the current portion of long term debt under the head current liabilities and the remaining $450,000 ($500,000-$50,000) as long term debt under the head Non-Current Liabilities (Ignoring the calculation of interest).Hereunder the extract of the Balance Sheet at the end of the first year:
Extract of Balance Sheet of GDS Udhyog At the end of the first year
| Particulars | Amount ($) |
| Liabilities and Shareholder’s Equity | |
| Non -current Liabilities | |
| Long term debt | 450,000.00 |
| Total Non -current Liabilities | 450,000.00 |
| Current Liabilities | |
| Current portion of the long term debt | 50,000.00 |
| Total Current Liabilities | 50,000.00 |
| Total shareholder’s equity and liabilities | 500,000.00 |
| Assets | |
| Current Assets | |
| Cash and Cash Equivalents | 500,000.00 |
| Total Current Assets | 500,000.00 |
| Total Assets | 500,000.00 |
Recording of Current Portion of Long Term Debt
Let’s understand how to record CPLTD. Suppose the company borrow $20,000 at the beginning of the year for five years, payable in 5 installments of $4,000 each year. So, at the beginning of the first year(year of borrowing), the company will recognize $20,000 as long term liability. The journal entry is as follows:
| Particulars | Amount ($) | Amount ($) |
| Cash A/c Dr. | 20,000 | |
| To Account Payable(long term liability) | 20,000 | |
| (Being long term loan borrowed) |
Now,$4,000 is payable within one year, so $4,000 out of $20,000 is transferred to CPLTD under the head current liability. The journal entry is as follows.
| Particulars | Amount ($) | Amount ($) |
| Account Payable(long term liability) Dr. | 4,000 | |
| To CPLTD (current liability) | 4,000 | |
| (Being a current portion of long term transferred to Current liability) |
At the end of the year, the CPLTD portion is paid off, and the entry is:
| Particulars | Amount ($) | Amount ($) |
| CPLTD (current liability) Dr. | 4,000 | |
| To Cash/Bank | 4,000 | |
| (Being a current portion of long term paid) |
And every year, the same process will follow.
Impact of CPLTD
If the Company recognize the Current portion of long term debt separately in the balance sheet, it will reduce the long term liability balance and increase its CPLTD balance with the value of CPLTD. At the time of settlement of the CPLTD portion, the CPLTD balance is debited, and cash or bank balance is credited. This bifurcation of Accounts between CPLTD and long-term liability is very useful for the interested parties to understand the company’s liquidity position in a better way and take financial decisions easily. Also, in case the company has a high amount of CPLTD and a small cash position, then it shows that higher risk of the default is there from the company’s side, and with this, lenders in the market may decide that further credit will not be given to the company and at the same time investor may also sell their share considering the high chances of default by the company.
Conclusion
Thus, the current portion of long-term debt is that portion of long-term liability that is to be paid within one year. It is shown separately in the balance sheet under the head current liabilities. The amount of CPLTD is credited under the head CPLTD, and this will reduce the balance of long term liability. It shows the liquidity position of the business in a fair manner. In some cases, where the company cannot fulfill the terms and conditions of the long-term loan, the borrower has the right to call off the whole amount of the loan. In this condition, the whole outstanding loan amount is converted into a current portion of long term debt. This will depict a fair view of the financial position of the company.