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ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements

Which of the following is a correct reason for classifying a liability as current in the statement of financial position?

A liability is classified as current when the entity has no right at the reporting date to defer settlement for at least twelve months, or it is expected to be settled within the normal operating cycle or twelve months. Security, currency or purpose do not decide classification.

  1. AThe entity has no right at the reporting date to defer settlement for at least twelve monthsCorrect
  2. BThe liability arose from a purchase of non-current assets
  3. CThe liability is secured on the entity's property
  4. DThe liability is denominated in a foreign currency

Explanation

A liability is current if it is due to be settled within twelve months or the entity has no right at the reporting date to defer settlement for at least twelve months. Purpose of borrowing, security or currency does not determine classification.

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