Part 1. Sprockets, Inc. has a December 31 year-end. On June 30, 2009, Sprockets obtains a $3,000,000 loan from a bank to purchase new equipment. The loan must be repaid in two years. In December 2009, Sprockets incurs unexpected operating costs and as a result violates one of its bank loan covenants as of December 31, 2009. As a result of the covenant violation, the bank loan becomes due in 30 days. On December 31, 2009, Sprockets asks the bank to waive the violation. Sprockets informs the bank that it will sell idle property to cure the debt covenant violation. On January 5, 2010, the bank agrees to waive the violation, stipulating that it must be rectified within 90 days. Sprockets issues its financial statements on January 25, 2010. Required: Identify the guidance in IFRS that pertains to this situation. Using that guidance, determine whether this loan should be classified as current or non-current on Sprockets’ balance sheet as of December 31, 2009 under IFRS.
Part 2. Now assume that Sprockets obtained a waiver from the bank on December 30, 2009 stipulating that the debt covenant violation must be rectified within 90 days. Required: Determine whether this loan should be classified as current or non-current on Sprockets’ balance sheet as of December 31, 2009 under IFRS.