Current Assets

An asset shall be classified as current, when it satisfies any of the following criteria:
(i) it is expected to be converted to cash (or is intended for sale, or consumption) in the normal operating cycle;
(ii) it is held primarily for the purpose of being traded;
(iii) it is expected to be converted to cash within twelve months, after the end of the reporting period; or
(iv) it is cash (or a cash equivalent, as defined in IAS 7), unless it is restricted from being exchanged (or used to settle a liability), for at least twelve months after the end of the reporting period.


EXAMPLE - Presentation of cash subject to restrictions over use

Issue

Should an undertaking include in its consolidated financial statements cash and cash equivalents, held by a subsidiary that is not available for use by other group undertakings?

Background
A subsidiary holds cash and cash equivalent balances with domestic banks. It operates in a country where there are exchange controls and the subsidiary is restricted from sending cash abroad to fellow subsidiaries and to the parent.

The amount of cash held is neither excessive nor short of the subsidiary’s operating needs.

Solution
The existence of currency restrictions in a foreign jurisdiction would not preclude the classification of the subsidiary’s cash and cash equivalent balance as a current asset in the consolidated financial statements.

The subsidiary needs the cash to meet its operating requirements, and will therefore use it freely.

The undertaking should, however, disclose the amount of cash and cash equivalents that is not available for use by the group [IAS7].

The disclosure should include a commentary that will help users understand the impact of these restrictions in the undertaking’s financial position and liquidity.

All other assets shall be classified as non-current.

IAS 1 uses the term ‘non-current’ to include tangible, intangible and financial assets of a long-term nature. It does not prohibit the use of alternative descriptions, if the meaning is clear.
The operating cycle is the time between the acquisition of assets for processing, and their conversion in cash. When the normal operating cycle is not clearly identifiable, it is assumed to be twelve months.