Deferred Long-Term Liability: Meaning, Example

What Are Deferred Long-Term Liability Charges?

The term deferred long-term liability charges refers to previously incurred liabilities that are not due within the current accounting period. These items are commonly shown on a company's balance sheet as a single line item with other forms of long-term debt obligations. Deferred long-term liability charges are reported as losses or expenses on the company's income statement.

Common types of deferred long-term liability charges include deferred tax liabilities.

Understanding Deferred Long-Term Liability Charges

A company's balance sheet is a financial statement that provides corporate personnel, investors, analysts, and other entities with important information about the financial health and well-being of a company. There are a number of key sections of the balance sheet that point to the company's financial position, such as its assets, liabilities, shareholder equity, and rates of return (ROR).

These categories are further divided into various subcategories. For instance, liabilities are sectioned off into current and other liabilities. Current liabilities include any obligations that are due immediately—at least within the current accounting period. The other obligations include long-term liabilities (which are also called noncurrent liabilities), such as long-term debt, other obligations, interest charges, and deferred long-term liability charges.

Deferred long-term liability charges appear together as a single line item on the balance sheet following a company's current liabilities. This figure appears alongside other long-term debt obligations. As mentioned above, deferred long-term liabilities are reported as losses on the income statement. They are removed from the balance sheet as soon as the company fulfills its obligations and makes payment.

Deferred long-term liability charges typically point to deferred tax liabilities that are to be paid a year or more into the future. Other deferred long-term liabilities include deferred compensation, deferred pension liabilities, deferred revenues, and derivative liabilities.

Special Considerations

As noted above, a company's deferred long-term liability charges appear as one-line items on its balance sheet. As such, there is normally no indication about what these charges entail. Investors and financial professionals may need to know the exact nature of these obligations in order to evaluate the investment potential of a company.

Since details of the deferred long-term liabilities aren't listed individually on the balance sheet, interested parties can view full details about the breakdown of the charges in the footnotes to the company's annual report or Form 10-K, where disclosure is likely to be given.

Example of a Deferred Long-Term Liability

A primary example of a deferred long-term liability is a derivative that hedges the identified risk of rising or falling cash flows or fair values. In this instance, the annual fair value changes are deferred until the hedged transaction occurs, or until the derivative in question ceases to be effective.

Contingent losses on a hedge will be accordingly booked as deferred long-term liabilities until the loss is incurred. If a derivative financial instrument does not qualify as a hedge, both realized, and unrealized changes in fair market value will be immediately reported on the income statement.