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CMA Intermediate · Corporate Accounting and Auditing · Statement of Profit and Loss and Balance Sheet (Schedule III of Companies Act, 2013)

A company's operating cycle is 15 months. It holds finished goods that it expects to sell in 14 months from the reporting date. Under Schedule III, how are these goods classified?

The finished goods are current assets because they are expected to be realised within the company's normal operating cycle of 15 months. Where the operating cycle is longer than twelve months, the cycle, not twelve months, is the test for classifying current assets.

  1. ANon-current asset, because realisation exceeds twelve months
  2. BCurrent asset, because they are realised within the normal operating cycleCorrect
  3. CNon-current investment
  4. DOther non-current asset

Explanation

Schedule III treats an asset as current if it is expected to be realised or intended for sale within the normal operating cycle. Inventory expected to be sold in 14 months falls within the 15-month cycle, so the twelve-month test is not applied.

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