IFRS Accounting Standards In Practice – Classification of Loans as Current or Non-current (2025/26)
IFRS Accounting Standards In Practice – Classification of Loans as Current or Non-current (2025/26)
BDO has published IFRS Accounting Standards In Practice – Classification of Loans as Current or Non-current (2025/2026)
BDO’s publication provides an overview of the requirements of IAS 1 Presentation of Financial Statements related to classification of loans with covenants as current or non-current.
The publication includes a flow chart to help in determining the classification of loans as current or non-current, along with application of the flow chart to multiple scenarios. The latest update to the publication includes additional examples to illustrate the requirements.
IAS 1.69 requires an entity to classify a liability as current when any of the following criteria are met:
a) it expects to settle the liability in its normal operating cycle;
b) it holds the liability primarily for the purpose of trading;
c) the liability is due to be settled within twelve months after the reporting period; or
d) it does not have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period.
An entity is required to classify all other liabilities as noncurrent.
The flow chart and the examples in the publication assume that conditions (a) to (c) above are not met, unless stated otherwise. Therefore, the focus of the subsequent discussion is on the assessment of whether the condition in IAS 1.69(d) is met i.e. whether the right to defer settlement of the liability for at least twelve months exists at the end of the reporting period.
IAS 1.72A requires the right to defer settlement of the liability for at least twelve months to have substance. The flow chart and the examples in this publication assume the right to defer settlement to have substance, unless stated otherwise.
The publication includes a flow chart to help in determining the classification of loans as current or non-current, along with application of the flow chart to multiple scenarios. The latest update to the publication includes additional examples to illustrate the requirements.
IAS 1.69 requires an entity to classify a liability as current when any of the following criteria are met:
a) it expects to settle the liability in its normal operating cycle;
b) it holds the liability primarily for the purpose of trading;
c) the liability is due to be settled within twelve months after the reporting period; or
d) it does not have the right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period.
An entity is required to classify all other liabilities as noncurrent.
The flow chart and the examples in the publication assume that conditions (a) to (c) above are not met, unless stated otherwise. Therefore, the focus of the subsequent discussion is on the assessment of whether the condition in IAS 1.69(d) is met i.e. whether the right to defer settlement of the liability for at least twelve months exists at the end of the reporting period.
IAS 1.72A requires the right to defer settlement of the liability for at least twelve months to have substance. The flow chart and the examples in this publication assume the right to defer settlement to have substance, unless stated otherwise.