Ind AS 1: Balance Sheet Structure and Current/Non-current Classification

Understand Structure and Content: Balance Sheet and Current/Non-current Classification

Key rules to remember

Current asset tests (any one)

Operating cycle OR held for trading OR realisable within 12 months OR unrestricted cash/cash equivalent

If none is met, the asset is non-current. Restricted cash for at least 12 months is non-current.

Current liability tests (any one)

Settled in operating cycle OR held for trading OR due within 12 months OR no right to defer for 12 months at reporting date

If none is met, the liability is non-current.

Default operating cycle

Operating cycle not clearly identifiable → 12 months

Use the entity's actual cycle when it is identifiable.

Right to defer settlement

Classification depends on the right existing at the end of the reporting period

Management intention and post-period events do not change it. Covenants to be complied with on or before the reporting date matter; covenants to be complied with only after that date do not affect classification, but may need disclosure.

Deferred tax

Deferred tax assets/liabilities → always non-current

Never show them as current.

Counterparty settlement option

A counterparty's option to settle by issuing the entity's equity instruments does not affect classification if the option is recognised separately as an equity instrument under Ind AS 32

For example, the equity component of a compound instrument. If the option is a liability, the liability is classified as current.

Minimum balance sheet line items

At minimum: PPE; investment property; intangible assets; financial assets; investments accounted for using the equity method; biological assets; inventories; trade and other receivables; cash and cash equivalents; total of assets classified as held for sale and assets included in disposal groups classified as held for sale; trade and other payables; provisions; financial liabilities; current tax assets; current tax liabilities; deferred tax assets; deferred tax liabilities; liabilities included in disposal groups classified as held for sale; non-controlling interest presented within equity; issued capital and reserves attributable to owners of the parent

These are the minimum face items. Schedule III (Division II) gives the detailed format for Ind AS companies.

How to solve Structure and Content: Balance Sheet and Current/Non-current Classification questions

1. 1Fix the reporting date and list every item in the question.
2. 2Identify the operating cycle. If it is not stated or identifiable, use 12 months.
3. 3For each asset, run the four current tests. One match makes it current.
4. 4For each liability, ask first: does the entity have the right at the reporting date to defer settlement for at least 12 months?
5. 5Check conditions attached to that right. Covenants to be met on or before the reporting date count. Those to be complied with only after the reporting date do not.
6. 6Treat post-period events (refinancing, waivers, rollovers) as non-adjusting. Give disclosure, not reclassification, unless the right existed at the reporting date.
7. 7Split any instalment loan into the portion due within 12 months (current) and the balance (non-current).
8. 8State the classification with a one-line reason and mention any disclosure.

Quickest way: Right-at-the-date shortcut

Common mistakes in Structure and Content: Balance Sheet and Current/Non-current Classification

• Treating a loan as non-current because the lender waived the covenant breach after the reporting date.

  Students link the waiver to the loan's original term and forget the date test.

  Fix: If the breach existed at the reporting date and, as a result, the lender could demand repayment within 12 months, classify as current. A waiver after the date is a non-adjusting event under Ind AS 10, so disclose it. Only a grace period of at least 12 months agreed on or before the reporting date would keep the loan non-current.

• Classifying a loan as non-current because management intends to refinance it.

  Intention feels like a right.

  Fix: Only a right to roll over that exists at the reporting date, under the existing loan facility, supports non-current. A refinancing agreed after the date does not.

• Treating all cash and bank balances as current.

  Cash is assumed to be always liquid.

  Fix: Cash restricted from use for at least 12 months after the reporting period is non-current.

• Showing deferred tax as current when reversal is expected within a year.

  Students apply the 12-month test to everything.

  Fix: Deferred tax assets and liabilities are always non-current.

• Applying a covenant that must be complied with only after the reporting date to classify the loan as current.

  Students assume any covenant risk makes the loan current.

  Fix: Covenants to be complied with only after the reporting date do not affect classification at the reporting date. Only covenants due on or before that date matter. Disclose in the notes if the entity may have difficulty complying within 12 months.

• Classifying a long-term loan fully as current when only one instalment is due soon.

  One due instalment is mistaken for default.

  Fix: Split the loan: the instalment due within 12 months is current and the balance is non-current.

Worked examples