Question

Operating Cycle and the expected period of realisation of trade receivables is given below. How will you classify the asset ?

$\begin{array}{cccccccc}\text{Particulars}& \text{(i)}& \text{(ii)}& \text{(iii)}& \text{(iv)}& \text{(v)}& \text{(vi)}& \text{(vii)}\\ \text{Operating Cycle (Months)}& 9& 17& 10& 10& 14& 24& 10\\ \text{Expected realisation period of Trade}& 8& 15& 11& 15& 16& 20& 12\\ \text{Receivables (Months)}& & & & & & & \end{array}$

Answer 1

1. All assets, that are expected to be realised within 12 months from the date of Balance Sheet, shall be treated as Current Assets. Period of operating cycle is irrelevant in such cases. Hence, trade receivables in case of (i), (iii) and (vii) shall be treated as current assets.

2. Assets that are expected to be realised in more than 12 months from the date of Balance Sheet :

(i) If the period of realisation of asset is less than the period of operating cycle, the asset shall be treated as Current Asset. Hence, trade receivables in case or (ii) and (vi) shall be treated as Current Assets.

(ii) If the period of realisation of asset is more than the period of operating cycle, the asset shall be treated as Non-Current Asset. Hence, trade receivables in case of (iv) and (v) shall be treated as Non-Current Assets.