What Are Other Long-Term Liabilities? Types and Examples Explained

Companies often have financial obligations extending beyond a year, categorized as long-term liabilities. These commitments help assess financial stability and future cash flow needs. Investors and analysts examine them to gauge risk and solvency.

Understanding the different types of long-term liabilities allows businesses to manage debt effectively while ensuring transparency in financial reporting.

Classification Criteria

Long-term liabilities extend beyond 12 months from the balance sheet date. Accounting standards such as U.S. GAAP and IFRS require companies to distinguish between short-term and long-term obligations to provide a clear financial picture. This classification reflects cash outflow timing and a company’s ability to meet obligations without disrupting liquidity.

Some liabilities, like bonds payable, have fixed repayment schedules, while others, such as pension liabilities, depend on actuarial assumptions. Lease obligations, governed by ASC 842 (U.S. GAAP) and IFRS 16, are classified based on lease term length and present value calculations. These standards ensure liabilities reflect economic reality rather than just legal form.

Debt covenants and contractual terms can trigger reclassification. Some long-term liabilities contain provisions that shift them to current liabilities if financial ratios, such as debt-to-equity, fall outside agreed thresholds. Violating these covenants may require immediate repayment. Callable debt—where lenders can demand early repayment—may also require reclassification under certain conditions.

Common Subcategories

Long-term liabilities include various financial obligations, each with distinct characteristics and accounting treatments.

Bonds Payable

Bonds payable represent debt securities issued to raise capital, typically with fixed interest payments and a maturity exceeding one year. Under U.S. GAAP (ASC 470) and IFRS (IAS 32 and IFRS 9), bonds are recorded at amortized cost unless designated at fair value.

For example, if a company issues $1 million in 10-year bonds at a 5% coupon rate, it must pay $50,000 in annual interest. If issued at a discount (e.g., $950,000), the discount is amortized over the bond’s life, increasing interest expense. Conversely, a premium (e.g., $1.05 million) reduces interest expense over time. Callable and convertible bonds require separate accounting for embedded features under ASC 815. Companies must disclose bond covenants, maturity schedules, and interest obligations.

Lease Obligations

Lease obligations arise from long-term leasing agreements where a company commits to periodic payments for asset use. Under ASC 842 (U.S. GAAP) and IFRS 16, nearly all leases—except short-term and low-value leases—must be recorded as liabilities with corresponding right-of-use assets. The liability is measured as the present value of future lease payments, discounted using the lessee’s incremental borrowing rate or the lease’s implicit rate.

For example, if a company leases equipment for five years at $20,000 annually with a 6% discount rate, the present value of lease payments (using a present value factor of 4.212) would be approximately $84,240. This amount is recorded as a lease liability, with interest expense recognized over time. Lease modifications, such as term extensions or payment adjustments, require reassessment. Disclosures must include lease terms, discount rates, and maturity schedules.

Pension Liabilities

Pension liabilities represent obligations to provide future retirement benefits under defined benefit plans. These liabilities depend on actuarial assumptions, including discount rates, employee turnover, and life expectancy. Under ASC 715 (U.S. GAAP) and IAS 19 (IFRS), companies must recognize the present value of projected benefit obligations (PBO) and compare it to plan assets to determine net pension liability or surplus.

For example, if a company’s PBO is $10 million and plan assets total $8 million, the $2 million shortfall is recorded as a liability. Changes in actuarial assumptions, such as a lower discount rate, can increase liabilities, affecting financial ratios. Companies must disclose pension expense components, funding status, and actuarial gains or losses. Some jurisdictions impose minimum funding requirements, affecting cash flow planning.

Comparison to Current Liabilities

Long-term liabilities differ from current liabilities primarily in repayment timelines, affecting financial ratios and liquidity assessments. A company’s ability to meet short-term obligations is measured through metrics like the current ratio (current assets divided by current liabilities) and quick ratio (liquid assets divided by current liabilities). Long-term obligations influence solvency measures such as the debt-to-equity ratio and interest coverage ratio.

The cost of financing varies between short- and long-term obligations. Interest rates on long-term debt are typically higher due to extended risk exposure, while short-term liabilities, such as accounts payable or short-term loans, often carry lower rates but require quicker repayment. The Federal Reserve’s monetary policy decisions influence short-term borrowing costs, whereas long-term debt pricing is more sensitive to bond market conditions and credit ratings. Companies with poor creditworthiness may struggle to secure favorable long-term financing, forcing reliance on short-term borrowing, which can create refinancing risk if credit markets tighten.

From a tax perspective, interest expense treatment varies by liability duration. Under the U.S. Tax Cuts and Jobs Act (TCJA) and subsequent modifications in the Inflation Reduction Act, businesses face limitations on interest deductibility. The IRS Section 163(j) rule restricts net interest expense deductions to 30% of adjusted taxable income, impacting companies with substantial long-term debt. Additionally, deferred tax liabilities—arising from temporary differences between book and tax reporting—often fall under long-term liabilities, affecting future tax obligations.

Placement on Financial Statements

Long-term liabilities appear on the balance sheet within the liabilities section, positioned below current liabilities to reflect their extended repayment horizon. Companies must separate these obligations from short-term debts to provide clarity on liquidity and solvency. The presentation follows a descending order of maturity or priority, with secured debt such as mortgage obligations often listed before unsecured liabilities like pension obligations or deferred tax liabilities.

Within financial reporting, long-term liabilities also influence the statement of cash flows. Principal repayments on long-term debt are recorded under financing activities. Interest payments are classified as operating cash outflows under U.S. GAAP, whereas IFRS allows them to be presented as either operating or financing activities. The flexibility under IFRS can impact reported operating cash flows, altering key liquidity metrics.

Disclosure Requirements

Financial reporting standards require detailed disclosures on long-term liabilities to ensure transparency for investors, regulators, and other stakeholders. These disclosures appear in the notes to the financial statements and must include descriptions of the nature, terms, and repayment schedules of outstanding obligations.

Regulatory frameworks such as SEC Regulation S-X (for publicly traded U.S. companies) mandate firms disclose debt covenants, interest rates, and maturity profiles. Under IFRS, IAS 1 requires entities to distinguish between secured and unsecured liabilities and disclose any breaches of loan agreements that could trigger early repayment. Pension liabilities must include actuarial assumptions, discount rates, and expected employer contributions under IAS 19 and ASC 715. Lease obligations require disclosure of lease terms, discount rates, and right-of-use asset values under ASC 842 and IFRS 16. Off-balance-sheet commitments, such as guarantees or contingent liabilities, must also be disclosed.

Reclassification from Long Term to Current

As liabilities approach their due dates, they must be reclassified from long-term to current liabilities on the balance sheet. This transition ensures financial statements accurately reflect short-term obligations and liquidity needs. The reclassification process follows strict accounting guidelines, requiring companies to assess whether a liability will be settled within the next 12 months. If a debt agreement includes a balloon payment or a significant portion of principal due within the next year, that portion must be moved to current liabilities.

Debt agreements often contain provisions that can accelerate reclassification. If a company violates a loan covenant and the lender has the right to demand immediate repayment, the entire outstanding balance may need to be classified as current. Callable debt—where creditors can require early repayment—must be evaluated for potential reclassification. Under ASC 470-10-45, companies can avoid reclassification if they obtain a waiver from the lender before financial statements are issued. IFRS follows a similar approach under IAS 1, requiring classification based on contractual rights in place at the reporting date.