Covenants

Covenants are often attached to borrowing agreements which represent undertakings by the borrower.
These covenants are actually restrictions on the borrower as to undertaking further borrowings, paying
dividends, maintaining specified level of working capital and so forth.
Breach of Covenants

  Breach of covenants will result to reclassification of a noncurrent liability as current. This is

due to the fact that upon breach of covenant, the liability becomes due and demandable on
demand.
  PAS 1 provides that such a liability is classified as current even if the lender has agreed,
after the reporting period and before the statements are authorized for issue, not to demand
payment as a consequence of the breach.
  However, the liability is classified as noncurrent if the lender has agreed on or before the
end of the reporting period to provide a grace period ending at least twelve months after that
date.

Non-adjusting Events

With respect to loans classified as current liabilities, the following events occurring between the end of
the reporting period and the date the financial statements are authorized for issue shall qualify for
disclosure as nonadjusting events, meaning, the loans remain current liabilities:

 Refinancing on long-term basis

 Rectification of a breach of a long-term loan agreement
 The granting of the lender of a grace period to rectify a breach of a long-term loan arrangement
ending at least

twelve months after the reporting period.