Classfication of current assets

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

22 March 2018 Dear Experts,

If in the financial statements of an entity there is opening balance of loan & Advance by Rs.500,000 for which no amount received during the year then in the current year it will be classified as current asset or Non current Asset ??

Thanks in advance....................

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)
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22 March 2018 To be treated as a Non current asset

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Querist : Anonymous

Querist : Anonymous (Querist)

23 March 2018 Dear sir

Can you please provide section reference in this regard.....................

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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19 July 2024 In accounting, the classification of loans and advances as current or non-current assets depends on their expected realization or repayment timeline. Here’s how it typically works:

1. **Current Assets:**
- Current assets are assets expected to be converted into cash or consumed within the normal operating cycle of the business or within one year from the reporting date, whichever is longer.
- If a loan or advance is expected to be realized or settled within the next operating cycle or one year from the reporting date, it should be classified as a current asset.

2. **Non-current Assets:**
- Non-current assets are assets that are not expected to be converted into cash or consumed within the next operating cycle or within one year from the reporting date.
- Loans and advances that are expected to be settled beyond this period are classified as non-current assets.

### Specific Scenario:
- If an entity has an opening balance of loans and advances amounting to Rs. 500,000 at the beginning of the financial year, and during the year no amount is received or expected to be received within the next year (i.e., beyond the operating cycle or one year from the reporting date), then:

- **Classification:** The loans and advances would typically be classified as **non-current assets** in the financial statements for the current year.

### Section Reference:
- The classification of assets (current vs. non-current) is guided by accounting standards or principles rather than specific sections in the Companies Act, 2013. However, the Companies Act, 2013 does provide guidelines on the preparation and presentation of financial statements under Schedule III.
- For detailed guidance, you can refer to **Schedule III of the Companies Act, 2013**, which outlines the format for the presentation of balance sheet and specifies the criteria for classifying assets and liabilities into current and non-current categories.

In conclusion, since the loan and advance in your scenario is not expected to be realized or settled within the next year, it would be classified as a non-current asset in the entity's financial statements. Always ensure to apply the relevant accounting standards and guidelines applicable in your jurisdiction for accurate classification.