Question

1. What is the complete definition for determining whether an asset or liability should be classified as current or non-current (time period and exception).

Answer 1

Current liabilities, also known as short-term liabilities, are debts or obligations that need to be repaid within a year.

Non-current liabilities, also known as long-term liabilities, are debts or obligations that are due in over a year’s time.

An exception to the above relates to current liabilities being refinanced into long-term liabilities. If the intent to refinance is present and there is evidence the refinancing has begun, a company may report current liabilities as long-term liabilities because after the refinancing, the obligations are no longer due within 12 months.

Current assets represent the value of all assets that can reasonably expect to be converted into cash within one year.

Non-current assets are a company’s long-term investments where the full value will not be realized within the accounting year.