2.7 Balance Sheet Classification
ASC 210-10 — Glossary
Current Liabilities
Current liabilities is used
principally to designate obligations whose
liquidation is reasonably expected to require the
use of existing resources properly classifiable as
current assets, or the creation of other current
liabilities. . . .
ASC 210-10
Classification of Current Liabilities
45-5
A total of current liabilities
shall be presented in classified balance
sheets.
45-6
The concept of current
liabilities includes estimated or accrued amounts
that are expected to be required to cover
expenditures within the year for known obligations
the amount of which can be determined only
approximately (as in the case of provisions for
accruing bonus payments) or where the specific
person or persons to whom payment will be made
cannot as yet be designated (as in the case of
estimated costs to be incurred in connection with
guaranteed servicing or repair of products already
sold).
45-9
Other liabilities whose
regular and ordinary liquidation is expected to
occur within a relatively short period of time,
usually 12 months, are also generally included [in
current liabilities] . . .
The balance sheet
classification of an accrued contingent liability
should be based on the period in which the entity
expects the contingency to be settled. A liability
should be classified as short-term if it is
expected to be settled within one year or less of
the balance sheet date (or longer if the entity’s
operating cycle is greater than one year).
Otherwise, the liability should be classified as
long-term.
Entities should undertake a balanced analysis
to determine the appropriate classification
without presuming either short-term or long-term
classification by default. As part of this
analysis, entities should consider the specific
circumstances associated with the liability,
including any outstanding offers to settle the
obligation. Such offers should be viewed as akin
to due-on-demand obligations, which would
generally require short-term classification unless
the outstanding offer is based on a long-term
payment plan.
Entities should have persuasive evidence to
support the classification of a liability. The
need for persuasive evidence may increase when an
entity has concluded that long-term classification
is appropriate. This evidence should clearly
demonstrate the entity's expectation regarding the
settlement period of the liability.
The following are additional considerations
related to the classification of a contingent liability:
-
A contingent liability that is measured on the basis of the entity’s best estimate of the current amount the entity would be required to pay to another party to settle a dispute is generally recognized as a current liability.
-
If an insurance recoverable receivable is recognized, the contingent liability and insurance receivable should generally be classified consistently. The determination of whether the liability and related asset are classified as current or long-term will depend on the facts and circumstances.