Corporate Accounting and Auditing · Presentation of Financial Statements (Ind AS 1)

Current and Non-Current Classification under Ind AS 1

Updated 10 October 2026 · Fact-checked

Ind AS 1 requires an entity to show current and non-current assets and liabilities separately in the balance sheet, unless a liquidity presentation is more relevant. An asset or liability is current if it meets any one listed test (operating cycle, trading, twelve months, cash, or no right to defer). Everything else is non-current.

Understand Balance Sheet: Current and Non-Current Classification

Ind AS 1 asks one question about every asset and liability: will it be turned into cash, or settled, soon? Soon means within the normal operating cycle or within twelve months after the reporting period. The split tells a reader how much of the business is working capital and how much is long-term.

The operating cycle is the time between acquiring assets for processing and realising them in cash or cash equivalents. When it is not clearly identifiable, it is assumed to be twelve months. This matters because inventories and trade receivables are current even if they take longer than twelve months to realise, as long as they are part of the normal operating cycle.

The tests for assets and liabilities look similar but are not the same. Assets are current if any one of four conditions holds. Liabilities are current if any one of four conditions holds, and the fourth is about the right to defer settlement at the end of the reporting period. All other assets and liabilities are non-current.

Two points often tested: deferred tax assets and liabilities are never shown as current. And classification of a liability depends on the right to defer at the reporting date, not on what management expects or intends to do.

Entities such as financial institutions, which do not supply goods or services within a clearly identifiable operating cycle, may present assets and liabilities in order of liquidity instead, if that is more reliable and relevant.

Key rules to remember

Current asset tests (para 66): Current if: (a) realised, sold or consumed in normal operating cycle; (b) held primarily for trading; (c) expected to be realised within 12 months after the reporting period; (d) cash or cash equivalent, unless restricted for at least 12 months; Any one test is enough. All other assets are non-current.
Current liability tests (para 69): Current if: (a) expected to be settled in normal operating cycle; (b) held primarily for trading; (c) due within 12 months after the reporting period; (d) no right at the end of the reporting period to defer settlement for at least 12 months; Any one test is enough. All other liabilities are non-current.
Unclear operating cycle: Operating cycle not clearly identifiable ⇒ assumed 12 months; Stated in paras 68 and 70.
Deferred tax (para 56): Deferred tax assets (liabilities) are not classified as current; Always non-current when the current/non-current split is used.
Likelihood of deferral (para 75A): Classification is unaffected by the likelihood that the entity will exercise its right to defer; Intention to settle early does not make a non-current liability current.
Minimum balance sheet line items (para 54): PPE; investment property; intangible assets; financial assets; investments by equity method; biological assets; inventories; trade and other receivables; cash and cash equivalents; assets held for sale; trade and other payables; provisions; financial liabilities; current tax; deferred tax; liabilities of held-for-sale groups; non-controlling interests; issued capital and reserves; This is a shortened list. Para 54 also has Ind AS 117 portfolio items (da) and (ma).

How to solve Balance Sheet: Current and Non-Current Classification questions

Use this method for any question that asks you to classify items or present them in the balance sheet.

1Identify the entity and its normal operating cycle. If it is not clear, take twelve months.
2Note the reporting date. All twelve-month tests run from this date.
3Take each item and decide whether it is an asset or a liability.
4Apply the tests in order. For an asset, check cycle, trading, twelve months, cash. For a liability, check cycle, trading, due within twelve months, right to defer.
5If any test is met, mark the item current. Otherwise mark it non-current.
6Apply the special rules: deferred tax is never current, restricted cash is not current, and the current portion of a long-term financial liability is current.
7Place each item under the correct heading and total current and non-current sections separately.
8Write one line of reason against each item, citing the test you used.

Quickest way: Twelve-month and operating cycle scan

When to use it: Use when a question lists many items and asks you to classify them quickly, or when an MCQ asks which item is current.

Ask first: is it cash, inventory, a trade receivable or a trade payable? These are current by default.
Ask next: is it due or realisable within twelve months of the reporting date? If yes, current.
For liabilities, ask: did the entity have a right at the reporting date to defer for at least twelve months? If no, current.
Cross out deferred tax, as it is non-current.
Everything left is non-current.

Common mistakes in Balance Sheet: Current and Non-Current Classification

Treating inventory or trade receivables as non-current because they will take more than twelve months to realise.
Students apply only the twelve-month test.
Fix: Remember the operating cycle test. Items sold or realised within the normal operating cycle are current even beyond twelve months.
Showing deferred tax asset or liability as current.
Students treat it like current tax.
Fix: Para 56 bars this. Deferred tax is always non-current; current tax is the one that can be current.
Classifying a loan as current because management plans to repay it early.
Intention is confused with right.
Fix: Para 75A says likelihood of exercising the right to defer does not affect classification. Check the right at the reporting date.
Showing the whole long-term loan as non-current when part is due within twelve months.
Students classify the loan as one block.
Fix: Split it. The instalment due within twelve months is current; the rest is non-current.
Treating all cash and bank balances as current.
Para 66(d) is remembered without its exception.
Fix: Cash restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period is non-current.
Treating bank overdraft as non-current because it is financing.
Students link it with borrowings.
Fix: Para 71 lists bank overdrafts as current liabilities.

Worked examples

Example 1

Sundaram Motors Ltd has a normal operating cycle of 18 months. At the reporting date it has: (i) inventory expected to be sold in 15 months; (ii) trade payables due in 16 months; (iii) a term loan of ₹50,00,000 with no right to defer, repayable in 8 months; (iv) a deferred tax liability of ₹4,00,000. Classify each item with reasons.

Show the solution

Operating cycle is 18 months, so tests (a) in paras 66 and 69 are judged against 18 months.
(i) Inventory is expected to be sold in the normal operating cycle (15 months within 18). Para 66(a) is met. Current.
(ii) Trade payables are part of working capital used in the normal operating cycle. Para 70 says they are current even if due after twelve months. Current.
(iii) The loan is due within twelve months (8 months), para 69(c), and there is no right to defer, para 69(d). Current.
(iv) Para 56 bars deferred tax liabilities from current classification. Non-current.

Answer: Inventory: current. Trade payables: current. Term loan ₹50,00,000: current. Deferred tax liability ₹4,00,000: non-current.

Example 2

Kaveri Textiles Ltd has a ₹80,00,000 loan repayable in equal annual instalments over 4 years, the first instalment being due 9 months after the reporting date. It also holds ₹6,00,000 cash in a bank account that cannot be used to settle liabilities for 18 months after the reporting date, and ₹2,00,000 in a normal current account. Show the classification.

Show the solution

Instalment per year = ₹80,00,000 ÷ 4 = ₹20,00,000.
The first instalment falls due 9 months after the reporting date, within twelve months. Para 69(c) is met, so ₹20,00,000 is current.
The second instalment is due about 21 months after the reporting date, beyond twelve months. The remaining ₹60,00,000 (₹80,00,000 − ₹20,00,000) is non-current, assuming a right to defer exists.
Cash of ₹6,00,000 is restricted for at least twelve months. Para 66(d) exception applies. Non-current.
Cash of ₹2,00,000 in a normal account is unrestricted. Current.

Answer: Loan: current ₹20,00,000 and non-current ₹60,00,000. Restricted cash ₹6,00,000: non-current. Normal bank balance ₹2,00,000: current.

Exam tips

Write the test you used (for example, para 69(c)) beside each item. Step marks follow the reasoning.
In MCQs, look for traps: deferred tax, restricted cash, current portion of long-term loans and trade payables beyond twelve months.
Always check whether the question gives an operating cycle longer than twelve months before classifying inventories, receivables and payables.
In a balance sheet question, show the current and non-current totals separately and tie to the Division II headings and notes.
Do not let stated management intention change a liability's class; check the right to defer at the reporting date.

Practice questions from Presentation of Financial Statements (Ind AS 1)

Balance Sheet: Current and Non-Current Classification in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Balance Sheet: Current and Non-Current Classification: frequently asked questions

When is a liability current under Ind AS 1?

A liability is current if it meets any one of four tests. It is expected to be settled in the normal operating cycle, held primarily for trading, due within twelve months after the reporting period, or the entity has no right at the end of the period to defer settlement for at least twelve months. All other liabilities are non-current.

What if the operating cycle is not clearly identifiable?

It is assumed to be twelve months. The same operating cycle applies to both assets and liabilities of the entity.

Is deferred tax current or non-current?

Deferred tax assets and liabilities are never classified as current when the entity presents a current and non-current split. They are shown as non-current.

Can an entity skip the current and non-current split?

Yes, if a presentation in order of liquidity gives reliable and more relevant information, as in financial institutions. In that case all assets and liabilities are presented in order of liquidity.