Question

How much should the company report as current assets on the December 31, 2020 classified balance sheet?

Answer 1

CLASSIFIED BALANCESHEET

The balance sheet reveals the assets, liabilities, and equity of a company. In examining a balance sheet, always be mindful that all components listed in a balance sheet are not necessarily at fair value. Some assets are carried at historical cost, and other assets are not reported at all (such as the value of a company’s brand name, patents, and other internally developed resources). Nevertheless, careful examination of the balance sheet is essential to analysis of a company’s overall financial condition. To facilitate proper analysis, accountants will often divide the balance sheet into categories or classifications. The result is that important groups of accounts can be identified and subtotaled. Such balance sheets are called “classified balance sheets.”

Assets:

The asset side of the balance sheet may be divided into as many as five separate sections (when applicable): Current assets; Long-term investments; Property, plant and equipment; Intangible assets; and Other assets. The contents of each category are determined based upon the following general rules:

Current Assets -Current assets represent all the assets of a company that are expected to be conveniently sold, consumed, used, or exhausted through standard business operations with one year. Current assets appear on a company's balance sheet, one of the required financial statements that must be completed each year.Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets. Current assets may also be called current accounts.

include cash and those assets that will be converted into cash or consumed in a relatively short period of time; specifically, those assets that will be converted into cash or consumed within one year or the operating cycle, whichever is longer. The operating cycle for a particular company is the period of time it takes to convert cash back into cash (i.e., purchase inventory, sell the inventory on account, and collect the receivable); this is usually less than one year. In listing assets within the current section, the most liquid assets should be listed first (i.e., cash, short-term investments, and receivables). These are followed with inventories and prepaid expenses.

Following is an illustrative example of a Statement of Financial Position prepared under the format prescribed by IAS 1 Presentation of Financial Statements.

Statement of Financial Position as at 31st December 2020

	Notes	2020	2019
	USD	USD
Assets
Non-current assets
Property, plant & equipment	9	130,000	120,000
Goodwill	10	30,000	30,000
Intangible assets	11	60,000	50,000
	220,000	200,000
Current assets
Inventories	12	12,000	10,000
Trade receivables	13	25,000	30,000
Cash and cash equivalents	14	8,000	10,000
	45,000	50,000
Total assets	265,000	250,000
Equity and liabilities
Equity
Share capital	4	100,000	100,000
Retained earnings	50,000	40,000
Revaluation reserve	5	15,000	10,000
Total equity	165,000	150,000
Non-current liabilities
Long term borrowings	6	35,000	50,000
Current liabilities
Trade and other payables	7	35,000	25,000
Short-term borrowings	8	10,000	8,000
Current portion of long-term borrowings	6	15,000	15,000
Current tax payable	9	5,000	2,000
	65,000	50,000
Total liabilities	100,000	100,000
Total equity and liabilities	265,000	250,000

Here Total Current Asset of 2020 is 45,000 and 2019 is 50,000.