Explain why the use of current liabilities as opposed to long-term debt subjects the firm to a greater risk of insolvency.

Explain why the use of current liabilities as opposed to long-term debt subjects the firm to a greater risk of insolvency.

Guest Guest	#1 27/06/2013 17:16 cant someone help me

Vit. A. Administrator Posts: 270 Points: 1 Joined: 23/05/2011	#2 29/06/2013 16:56 Current liabilities should be settled within short time (< 1 year). So you need money to pay now and have a little time to get profit (money) within your normal business process.

Nabeel Shaukat Butt User Posts: 26 Joined: 30/06/2011	#3 13/01/2014 18:22 Due to the following reasons: - You may need to pay off current liabilities from your working capital - You may have to get additional short term loans to pay off your existing short term loans for example overdraft - Current liabilities have time constraints rather than Long-term liabilities which are not to be paid immediately and the interest rate is also low. - Since you have short time to pay off sort term liabilities, non-payment of the same may result in legal issues There are many other reasons. Above are only a few. Refer our ACCA section for useful information about International Accounting Standards http://www.readyratios.com/articles/ifrs/

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