✅ Understanding Classification of Assets and Liabilities as Per ICAI Guidance Note (2023)

Proper classification of assets and liabilities is fundamental to preparing a fair and transparent Balance Sheet. The ICAI’s Guidance Note on Financial Statements for Non-Corporate Entities mandates clear bifurcation into Current and Non-Current. This classification is mandated by ICAI Guidance Note for non-corporate entities (effective from FY 2024-25). It aligns with the definition of operating cycle as 12 months if otherwise not identifiable.

Let’s break this down with clear definitions, examples, and a tabular summary.

🔍 What Are Current and Non-Current Assets?

🔹 Current Assets:

Assets are classified as current if they meet any of the following criteria:

• Expected to be realized in, sold or consumed in the normal operating cycle (assumed to be 12 months if not clearly identifiable).
• Held primarily for trading.
• Expected to be realized within 12 months after the balance sheet date.
• Cash or cash equivalent not restricted for 12 months after the balance sheet date.

🔹 Non-Current Assets:

All other assets that do not meet the criteria above are non-current. These generally provide benefit beyond 12 months.

💰 What Are Current and Non-Current Liabilities?

🔹 Current Liabilities:

Liabilities are current if they meet any of the following conditions:

• Expected to be settled in the normal operating cycle.
• Held primarily for trading.
• Due within 12 months after the reporting date.
• The entity does not have an unconditional right to defer settlement beyond 12 months.

🔹 Non-Current Liabilities:

All other liabilities that are not due within the operating cycle or 12 months are classified as non-current.

📊 Summary Table with Real Examples

📌 Key Notes

• Split items as needed: For example, a term loan should be divided between current maturities and long-term liability.
• Disclosure is crucial: Mention current and non-current portions separately in notes to accounts.
• Operating cycle: Unless otherwise evident, a 12-month cycle is assumed.

📘 Conclusion

Accurate classification ensures stakeholders have a transparent picture of your entity’s financial position. With ICAI’s Guidance Note now effective, it’s essential for non-corporate entities (like partnerships, proprietorships, HUFs, societies, etc.) to adopt this standardized reporting practice.

Need help applying this to your financials? Consult your Chartered Accountant today!