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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

Under IAS 1, which of the following must be classified as a current asset in a company's statement of financial position?

Inventory expected to be sold within the normal operating cycle is a current asset, even if the cycle is longer than twelve months. The building, the three-year loan receivable and the production machine are all held or realised over longer periods, so they are non-current.

  1. AInventory that the company expects to sell within its normal operating cycle, even if that cycle is longer than twelve monthsCorrect
  2. BA freehold building that the company intends to sell in two years
  3. CA loan receivable due for repayment in three years
  4. DA machine held for use in production for the next five years

Explanation

IAS 1 treats an asset as current if the entity expects to realise or sell it within its normal operating cycle, even where that cycle exceeds twelve months. The other items are expected to be realised or used beyond the operating cycle or twelve months, so they are non-current.

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