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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 liability in the statement of financial position of Zeta Co at 31 December 20X5?

A trade payable due within the entity's normal operating cycle is classified as current under IAS 1. The loan due in 20X8, the ten-year decommissioning provision and the deferred tax are all settled well beyond twelve months, so they are non-current liabilities.

  1. AA bank loan repayable in full on 30 June 20X8, with no right to demand earlier repayment
  2. BA trade payable due for settlement within the entity's normal operating cycleCorrect
  3. CA provision for decommissioning costs expected to be incurred in ten years
  4. DDeferred tax expected to reverse in five years

Explanation

IAS 1 requires liabilities expected to be settled within the normal operating cycle to be current, even if settlement is beyond 12 months. The loan, decommissioning provision and deferred tax are not due within 12 months or the operating cycle, so they are non-current. The bank loan is wrongly chosen if the repayment date is mistaken for being close.

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