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CFA Level I · CFA Level I Exam · Analyzing Balance Sheets

Under IFRS, a classified (current/non-current) balance sheet presentation is most likely preferred over a liquidity-based presentation when:

A manufacturer with a clearly identifiable operating cycle most likely uses a classified balance sheet. Under IFRS, classification into current and non-current items is the default, while liquidity-based presentation suits banks or entities whose operating cycle is not clearly identifiable.

  1. Athe entity is a bank
  2. Bthe entity is a manufacturer with a clearly identifiable operating cycleCorrect
  3. Cthe entity cannot identify its operating cycle

Explanation

IAS 1 requires a classified presentation unless a liquidity-based presentation is more relevant and reliable. Entities with a clear operating cycle, such as manufacturers, use current and non-current classification. Banks and entities without a clear operating cycle typically use liquidity order.

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