ACC1701B Chap.8 Current Liabilities and Long-Term Assets
Current Liabilities and Long-Term Assets
Recognition and maturity are separate
A liability is recognised when a present obligation exists and can be measured. Classification then asks when settlement is due within the reporting framework and operating cycle. Trade payables, accrued wages, taxes payable, customer advances and the current portion of long-term borrowing can all appear in the current section for different economic reasons.
Do not choose classification from the size of the balance or from whether it feels urgent.
Split borrowing from its schedule
A multi-year loan can create both current and non-current amounts at one reporting date. Use the dated principal repayments to identify the portion due in the near term and keep accrued interest separate.
A covenant breach, refinancing arrangement or payment immediately after year-end may require additional analysis, so a long contract title is not enough.
The split matters because moving a current obligation to non-current can improve the current ratio without changing total liabilities.
Asset cost ends when the resource is ready
Property, plant and equipment cost includes purchase price and costs necessary to bring the asset to its location and condition for intended use. Routine repairs that maintain existing service are expenses.
Expenditure that creates additional future benefit may qualify for capitalisation. The decision follows the nature of the future service, not the size of the cash payment.
Buying the asset is an investing cash outflow and an exchange of assets, not immediate depreciation expense.
Depreciation allocates, it does not revalue
Straight-line depreciation divides cost less residual value across useful life when an even service pattern is appropriate.
Accumulated depreciation preserves the original cost while reporting allocation to date, and carrying amount equals cost less accumulated depreciation and other reductions.
A revision to useful life or residual value uses the current carrying amount prospectively; it is distinct from correcting an earlier error based on information already available.
Disposal and liquidity require context
On disposal, compare proceeds with carrying amount to determine gain or loss. The full cash receipt is an investing inflow; only the difference from carrying amount enters profit.
Omitted depreciation overstates assets, profit and equity, while misclassified current debt overstates liquidity without changing total debt. Evaluate repayment capacity with maturity, operating cash and current resources together rather than treating one classification or ratio as a prediction of default.
What this chapter covers
- 01
Present obligations
- 02
Current classification
- 03
Current portion of debt
- 04
PPE initial cost
- 05
Straight-line depreciation
- 06
Asset disposal
- 07
Prospective estimate revisions and repayment-capacity context
- 08
Current principal separated from accrued interest
Worked example · free
Split debt and depreciate equipment
- 2Split maturity.
- 2Build asset cost.
- 2Compute depreciation.
- 2Find carrying amount.
Key terms
- Current Portion
- The principal amount of long-term debt due within the current horizon.
- Accumulated Depreciation
- The contra-asset holding depreciation allocated since acquisition.
Current Liabilities and Long-Term Assets FAQ
Can one loan be current and non-current?
Yes. The next principal instalment can be current while later maturities remain non-current. Build the split from the repayment schedule and keep accrued interest separate from principal.
Is depreciation a valuation?
No. It systematically allocates depreciable cost across periods of use and does not attempt to report market value. Carrying amount can therefore differ substantially from a sale price.
What is gain on disposal?
Gain on disposal is cash proceeds minus carrying amount after updating depreciation to the sale date. The full receipt is an investing cash inflow, not the gain reported in profit.
Exam move
Divide the page into a liability maturity track and a long-term asset track. For borrowing, copy the dated principal schedule, identify the next settlement portion and verify that current plus non-current pieces equal total principal. Record accrued interest separately and note any fact that could alter classification, such as a covenant or refinancing arrangement.
Recompute the current ratio before and after a deliberately wrong classification to see why presentation matters. For property, plant and equipment, list purchase price and each directly attributable cost needed to prepare the asset for use; place routine maintenance in an expense column and explain why it provides no additional future service.
Keep separate lines for cost, residual value, depreciable amount, annual expense, accumulated depreciation and carrying amount. Draw a time line for part-year ownership and update depreciation to any disposal date before comparing proceeds with carrying amount. Practise revised useful lives prospectively from current carrying amount and contrast that with correction of an original-cost error.
Finish mixed questions with two controls: the maturity pieces sum to recognised debt, and cost less accumulated depreciation equals carrying amount. Then write a cautious decision sentence using repayment timing, operating cash and current resources together. This prevents a classification result or non-cash depreciation charge from becoming an unsupported conclusion about solvency.
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