What is Long-Term Debt Accounting?
Long-term debt is any borrowing or financing obligation that becomes due more than 12 months after the reporting date. It includes bank loans, sukuk, bonds, lease liabilities, and shareholder loans with long maturities. Long-term debt is recognised at amortised cost using the effective interest method under IFRS 9.
How It Works
- Recognise the debt initially at fair value (usually the cash received), net of transaction costs.
- Apply the effective interest method to recognise interest expense over the life of the debt.
- Classify the portion due within 12 months as a current liability.
- Disclose covenants, security, and maturity schedules in the notes.
Saudi Context
Saudi companies finance Vision 2030 expansion through long-term bank loans (Murabaha, Tawarruq), sukuk, and SIDF loans. Tadawul-listed companies disclose detailed maturity schedules and covenants. ZATCA reviews long-term debt for zakat base calculations, with specific rules on what counts as a deduction.
Example
A Riyadh company takes a SAR 50 million 7-year Murabaha facility at 5%. It recognises a SAR 50 million liability and accrues profit (interest) using the effective interest method, classifying SAR 7 million as current and the rest as non-current.