Active learning ideas
Long-term borrowings are essential for businesses looking to expand, but they come with significant risks and costs. Students learn how to account for non-current liabilities such as bank loans and bonds. They focus on the recording of the principal amount and the periodic interest expenses that must be matched against the company's income.
Activity 01
Students act as business owners applying for a 5-year loan. They must calculate the annual interest and show how the loan will appear as both a current and non-current liability over time.
How are year-end adjustments like accruals and prepayments incorporated into financial statements?
Activity 02
Provide two companies: one with no debt and one with high debt. Students discuss in pairs which one is riskier during an economic downturn and which one might grow faster in a boom.
What is the structure of a Statement of Financial Performance?
Activity 03
Groups are given different interest rates and loan terms. They must calculate the total cost of borrowing and present a 'repayment schedule' to the class, explaining the impact on cash flow.
How is the owner's equity presented in the Statement of Financial Position?
A few notes on teaching this unit
Watch Out for These Misconceptions
The entire loan amount is always a non-current liability.
The portion of the loan principal due within the next 12 months must be reclassified as a current liability. A 'reclassification' exercise helps students see how the balance sheet changes at year-end.
Interest paid is the same as the loan repayment.
Interest is the cost of borrowing (an expense), while the repayment reduces the principal (a liability). Using a T-account simulation helps students see these as two distinct effects.
Methods used in this brief
Trial Balance and Correction of Errors
Prepare a trial balance and understand the process of identifying and correcting accounting errors.
8 methodologies
Financial Statements for Limited Companies
Prepare financial statements for limited companies, focusing on the presentation of share capital, reserves, and retained earnings.
8 methodologies