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Commission Regulation
(EC) No 1725/2003 of 29 September
2003 amended by Regulation (EC) No 2238/2004
and Regulation (EC) No 1910/2005
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Current Assets
57. An asset shall
be classified as current when it satisfies any of the following
criteria:
(a) it is expected
to be realised in, or is intended for sale or consumption
in, the entity’s normal operating cycle;
(b) it is held
primarily for the purpose of being traded;
(c) it is
expected to be realised within twelve months after the
balance sheet date; or
(d) it is cash or a
cash equivalent (as defined in IAS 7 Cash FlowStatements)
unless it is restricted from being exchanged or used
to settle a liability for at least twelve months after the
balance sheet date.
All other assets
shall be classified as non-current.
58. This Standard
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 as long as
the meaning is clear.
59. The operating
cycle of an entity is the time between the acquisition of
assets for processing and their realisation in cash or cash
equivalents. When the entity’s normal operating cycle is not
clearly identifiable, its duration is assumed to be twelve
months. Current assets include assets (such as inventories and
trade receivables) that are sold, consumed or realised as part
of the normal operating cycle even when they are not expected
to be realised within twelve months after the balance sheet
date. Current assets also include assets held primarily for
the purpose of being traded (financial assets within this
category are classified as held for trading in accordance with
IAS 39 Financial Instruments: Recognition and
Measurement) and the current portion of non-current
financial assets.
Current Liabilities
60. A liability
shall be classified as current when it satisfies any of the
following criteria:
(a) it is expected
to be settled in the entity’s normal operating
cycle;
(b) it is held
primarily for the purpose of being traded;
(c) it is due to be
settled within twelve months after the balance sheet
date; or
(d) the entity does
not have an unconditional right to defer settlement
of the liability for at least twelve months after the
balance
sheet date.
All other
liabilities shall be classified as non-current.
61. Some current
liabilities, such as trade payables and some accruals for
employee and other operating costs, are part of the working
capital used in the entity’s normal operating cycle. Such
operating items are classified as current liabilities even if
they are due to be settled more than twelve months after the
balance sheet date. The same normal operating cycle applies to
the classification of an entity’s assets and liabilities.
When the entity’s normal operating cycle is not clearly
identifiable, its duration is assumed to be twelve months.
62. Other current
liabilities are not settled as part of the normal operating
cycle, but are due for settlement within twelve months after
the balance sheet date or held primarily for the purpose of
being traded. Examples are financial liabilities classified as
held for trading in accordance with IAS 39, bank overdrafts,
and the current portion of non-current financial liabilities,
dividends payable, income taxes and other non-trade payables.
Financial liabilities that provide financing on a long-term
basis (ie are not part of the working capital used in the
entity’s normal operating cycle) and are not due for
settlement within twelve months after the balance sheet date
are non-current liabilities, subject to paragraphs 65 and 66.
63. An entity
classifies its financial liabilities as current when they are
due to be settled within twelve months after the balance sheet
date, even if:
(a) the original
term was for a period longer than twelve months; and
(b) an agreement to
refinance, or to reschedule payments, on a long-term basis is
completed after the balance sheet date and before the
financial statements are authorised for issue.
64. If an entity
expects, and has the discretion, to refinance or roll over an
obligation for at least twelve months after the balance sheet
date under an existing loan facility, it classifies the
obligation as non-current, even if it would otherwise be due
within a shorter period. However, when refinancing or rolling
over the obligation is not at the discretion of the entity (for
example, there is no agreement to refinance), the potential to
refinance is not considered and the obligation is classified
as current.
65. When an entity
breaches an undertaking under a long-term loan agreement on or
before the balance sheet date with the effect that the
liability becomes payable on demand, the liability is
classified as current, even if the lender has agreed, after
the balance sheet date and before the authorisation of the
financial statements for issue, not to demand payment as a
consequence of the breach. The liability is classified as
current because, at the balance sheet date, the entity does
not have an unconditional right to defer its settlement for at
least twelve months after that date.
66. However, the
liability is classified as non-current if the lender agreed by
the balance sheet date to provide a period of grace ending at
least twelve months after the balance sheet date, within which
the entity can rectify the breach and during which the lender
cannot demand immediate repayment.
67. In respect of
loans classified as current liabilities, if the following
events occur between the balance sheet date and the date the
financial statements are authorised for issue, those events
qualify for disclosure as non-adjusting events in accordance
with IAS 10 Events after the Balance Sheet Date:
(a) refinancing on a
long-term basis;
(b) rectification of
a breach of a long-term loan agreement; and
(c) the receipt from
the lender of a period of grace to rectify a breach of a
long-term loan agreement ending at least twelve months after
the balance sheet date.
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