An entity shall classify an asset as current when:

(a) it expects to realise the asset or intends to sell or consume it in its normal operating cycle.

(b) it holds the asset primarily for the purpose of trading.

(c) it expects to realise the asset within twelve months after the reporting period; or

(d) the asset is cash or a cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle aliability for at least twelve months after the reporting period.

An entity shall classify all other assets as non-current.

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A current asset is an asset expected to beconverted into cash within the business’s operating cycle, typically within one year. Current assets include cash, accounts receivable, inventory, and marketable securities. They are crucial for assessing a business’s liquidity and ability to meet short-term obligations.

Example: A retail store has £20,000 in cash, £40,000 in inventory, and £10,000 in accounts receivable. All these are current assets because they will likely be converted into cash within a year. These assets areessential for paying rent, salaries, and suppliers, ensuring smooth business operations.

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