14.6 Classification as Current or Noncurrent
If an entity presents a classified balance sheet, it should determine whether certain
revenue-related balances should be presented as current or noncurrent (or bifurcated
between the two).
14.6.1 Contract Assets and Contract Liabilities
In a manner similar to the treatment of assets and liabilities
related to the receipt or use of cash (e.g., receivables, prepaid assets, or
debt), contract assets and contract liabilities should be bifurcated between
current and noncurrent when presented in a classified balance sheet. Note that
the contract asset or contract liability determined at the contract level (i.e.,
after the contract assets and contract liabilities for each performance
obligation within a single contract have been netted, as discussed in Section 14.7.1) is the contract asset or
contract liability that should be bifurcated between current and noncurrent when
presented in a classified balance sheet
14.6.2 Refund Liabilities
The example below considers whether it is appropriate for an
entity to classify refund liabilities (or similar liabilities) as a noncurrent
liability in a classified balance sheet.
Example 14-5
Entity P, an entity with an operating cycle of less than
12 months, expects to return proceeds related to refund
liabilities (or similar liabilities) more than 12 months
after the reporting date. However, the counterparty can
demand a refund of amounts previously paid at any
time.
Entity P should not classify the portion that it expects
to repay more than 12 months after the reporting date as
a noncurrent liability in a classified balance sheet.
All amounts related to such liabilities should be
recorded as a current liability because the counterparty
can demand a refund at any time.
On a classified balance sheet, the refund liability should not be presented as
noncurrent if the customer can cancel the contract at any point or within 12
months or less. Rather, all amounts should be recorded as a current liability.
The refund liability is excluded from contract liabilities because the customer
must, in effect, make a separate purchase decision when the noncancelable term
ends, at which point it could demand a refund of funds previously paid.
ASC 470-10-45-10, which
specifies that loans due on demand should be presented as a current liability,
supports this view.
ASC 470-10
45-10 The current liability
classification shall include obligations that, by their
terms, are due on demand or will be due on demand within
one year (or operating cycle, if longer) from the
balance sheet date, even though liquidation may not be
expected within that period. The demand provision is not
a subjective acceleration clause as discussed in
paragraph 470-10-45-2.
14.6.3 Capitalized Contract Costs
It is acceptable for costs of obtaining or fulfilling a contract to be bifurcated
between current and noncurrent in a classified balance sheet. Alternatively, in
a manner similar to the treatment of (1) intangible assets, (2) inventory, or
(3) property, plant, and equipment, capitalized costs of obtaining or fulfilling
a contract may be presented as a single asset and neither bifurcated nor
reclassified between current and noncurrent assets. That is, the assets would be
classified as long-term unless they had an original amortization period of one
year or less.