IAS 1 - current assets

fairf

IAS 1 defines current assets to be listed on the statement of financial position as

1) cash
2) cash equivalent

I'm okay with those but then we have

3) assets held for collection, sale or consumption within the entity's normal operating cycle, or
4) assets held for trading within the next 12 months

I am struggling to understand these and the differences between them.

What is the difference between assets held for sale and assets held for trading?

Does (3) refer to raw materials to manufacture products (ie the reference to consumption) and work in progress whereas (4) refers to finished products?

And you have to include an asset which the business has sold (and no longer owns?) but is still on the business's premises?

Isn't an entity's normal operating cycle 12 months?

Thanks for your help.

fairf

Steve Collings

HI

Assets held for collection, sale or consumption within the entity's normal operating cycle would be CURRENT assets including: inventories, receivables, prepaid expenses and such like - in other words anything that is going to be converted into cash/cash equivalents within the next 12 months, hence 'current'.

An asset held for sale is dealt with in IFRS 5 (not IAS 1) and is something like a building that is up for sale whereas an asset held for trading would be something like inventory/finished goods.

Assets which are sold and the business no longer owns are not included in the statement of financial position unless substantially all of the risks and rewards of ownership still remain with the entity (which ordinarily wouldn't be the case).

The cash operating cycle is the length of time it takes between the acquisition of materials entering into a process and the receiving of cash or an instrument that is readily convertible into cash. This is usually taken to be 12 months and therefore such assets that will be convertible into cash within 12 months are current assets. Inventories arne trade receivables should still be classed as current assets even if these assets are not expected to be turned into cash within 12 months from the reporting date.

I hope that clears some confusion up for you.

Kind regards
Steve

omega man

IFRS 5 is no longer assessable only IFRS 3 business combinations anyway as far as i am aware.

fairf

Thank you Steve. When I wrote about current assets to be listed on the statement of financial position I was quoting from the section on IAS 1 (Presentation of Financial Statements) in the International Accounting Standards document in the learning zone of the AAT website.

I am doing level 4 at an FE college and we use the Osborne books. I have passed Financial Performance and Budgeting. We have been doing accounting standards for a few weeks. I find it hard to grasp what parts of the standards really mean in ordinary, everyday English because of the use of certain words and phrases. Thus I am worried about this module. Before I started the thread here, I had already asked a college teacher and then an accountant(!) about that part of IAS 1 and neither seemed to know what it meant.

Omega man, yes, it appears that the only IFRS we are assessed on is IFRS 3 (plus IAS 1, 2, 7, 10, 12, 16, 17, 18, 27, 28, 36, 37, 38). I know that this is less than people had to learn last year, but it is still challenging.

fairf

Steve Collings

fairf wrote: »

Before I started the thread here, I had already asked a college teacher and then an accountant(!) about that part of IAS 1 and neither seemed to know what it meant.

fairf

This is what really - and I mean REALLY aggravates me about some tutors. If they can't teach or can't be bothered to teach, then don't do it! There are some brilliant tutors out there (I know a lot of them) but there are also some that just shouldn't be let loose in a classroom. Why should students suffer?! The exams are hard enough. I have also met tutors who train students merely to pass exams rather than teach an actual subject in preparation for doing that subject in the workplace - this is something else I find irritating and a waste of not only tuition time (which is clearly limited), but also (and more importantly the student's time).

I wrote this specifically on FNST which I hope will help you.

Good luck with the rest of your studies. Also have a look at my IFRS For Dummies book as that covers the IAS 1 issues you mentioned and there's currently 36% off it on Amazon! I don't have control over the discounts and they could be withdrawn at any time..... just a thought....