What is the difference between Current and Non-current liabilities
Companies must pay current liabilities within a year and often use current assets for payment. Current liabilities include short term debts, income taxes dye, accounts payable Non-current liabilities are due in more than one year (longer than 12 months) and most often include debt repayments, long term loans, bonds payable, long-term debts and deferred payments and deferred tax liabilities.
The balance sheet splits non-current and current liabilities, the long-term liabilities are clustered together and below that you would see the current liabilities clustered together.
The IASB made a small change to the accounting standard IAS 1, 'Presentation of Financial Statements'. This change was made to clarify the categorization of debts as either current or non-current.
The categorization is based on the rights at the end of the reporting period. The classification is not affected by the entity's or events' expectations after the reporting date. This includes receiving a waiver or breaching a covenant.
The amendment also clarifies what IAS 1 means when it refers to the ‘settlement’ of a liability. Entities should reconsider their existing classification in the light of the amendment and determine if they need to make any changes.
On 23 January 2020, the IASB made a small change to IAS 1. The IASB made a small change to IAS 1 on 23 January 2020. This change clarified that liabilities are categorized as either current or non-current. The categorization is based on the rights at the end of the reporting period.
The amendment requires the following:
- Liabilities are considered non-current if the company can delay paying them for at least a year after the reporting period. The amendment no longer mentions unconditional rights because loans are usually not unconditional due to covenants.
- The assessment determines whether a right exists, but it does not consider whether the entity will exercise the right. So, management’s expectations do not affect classification.
- The right to defer only exists if the entity complies with any relevant conditions at the reporting date. A liability is current if a breach happens before the reporting date and a waiver is obtained after the reporting date. If a covenant is breached after the reporting date, the loan is classified as non-current.
- 'Settlement' means paying off a debt with money, assets, or a company's own stocks. Convertible instruments that can be converted into equity have an exception.
- A specific exception exists for convertible instruments that can be converted into equity. This exception only applies to instruments where the conversion option is considered an equity instrument. Separate from other parts of a compound financial instrument.
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