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Erudite Company had a loan of P5,000,000 repayable in five years. The loan included a covenant requiring a working capital ratio of at least 1.2
Erudite Company had a loan of P5,000,000 repayable in five years. The loan included a covenant requiring a working capital ratio of at least 1.2 on December 31, 2024 and 1.5 on June 30, 2025. The entity is preparing its financial statements for the year ending December 31, 2024. The working capital ratio on December 31, 2024 is 1.3 and the entity expected the working capital ratio to be 1.4 on June 30, 2025. I. The loan should be classified as noncurrent liability on December 31, 2024. II. The loan should be classified as current liability on December 31, 2024. III. Covenants that the entity must comply with after December 31, 2024 do not affect the classification of the liability on December 31, 2024. IV. The expectation of compliance with future covenant is irrelevant for classification purposes at the end of current reporting period. a. All statements are true b. All statements are false C. Only statements I, IlI and IV are true d. . Only statements Il and III are true
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