The Guidance Note on Division II of Schedule III to the Companies Act, 2013 issued by the Institute of Chartered Accountants of India (ICAI) states that investments may be classified as current / non-current based on intention to sell within twelve months from the balance sheet date or based on the realisability of the investment within operating cycle.
In this regard, let us see when an asset can be classified as current. Paragraph 66 of Ind AS 1, Presentation of Financial Statements, states as under:
“An entity shall classify an asset as current when:
a) It expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
b) It holds the asset primarily for the purpose of trading;
c) It expects to realise the asset within twelve months after the reporting period; or
d) The asset is cash or cash equivalent (as defined in IAS 17) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
An entity shall classify all other assets as non-current.”
Paragraph 66(a) which talks of classification based on operating cycle uses the word “in” and not “within”. Thus, an asset is classified as current based on operating cycle if it is part of operating cycle. The Guidance Note has mixed up paragraph 66(c) and 66(a) of Ind AS 1 by interpreting the word “in” as “within”. The word “within” is normally used with a time period. Therefore, the word “within” is appropriate for twelve months test.
Investments can be classified as current based on operating cycle only if investment is part of operating cycle. Investments that are not part of operating cycle are classified as current if the company expects to realise within twelve months after the balance sheet date.
