Case study 1

Is it a Current asset or Non current asset?

Radha Ltd. purchased certain items of inventory and held for consumption

for a period more than 12 months. Operating cycle of the entity is 15

months. Should these items should be treated as current assets ?

Case study 2

Is it Current asset or Non current asset

Krishna Ltd normally collects receivables by 6 months. An amount of Rs.2

million is due from Uddhav Ltd for 10 months. Its operating cycle cannot be

clearly identified. Should the receivables be treated as non – current asset?

Case study 3

Is it Current asset or Non current asset

The accountant of Rasavihari Ltd. observed as on 31-03-2009 that an item of

trade payable is outstanding for last 14 months which is much longer than

the average payment period followed by the company. He was confused

whether or not to classify this item as non – current liability. The Finance

Manager of the company has worked out the following:

Average raw material holding period 4 months

Average production period 3 ½ months

Average finished goods inventory holding 4 months

Average collection period 6 months

Average payment period to creditors 2 months

The Accountant was wondering whether to apply Average Payment period

to creditors (6 months) as normal operating cycle for creditors and

accordingly to classify the items as non – current as it was due for more than

12 months (applying even a default operating cycle of 12 months)

Case study 4

Current or Non current Liability

Hayagriva Ltd entity has trade payables – Rs.5,00,000 due for 3 months

which are expected to be settled by month’s time and Rs. 1,00,000 due for 6

months and are expected to be settled within 3 months after the balance

sheet date. Normal operating cycle of the entity is 4 months.

Case study 5

Current or Non current Liability

Mukunda Ltd is holding 100 lots of written call option each lot comprising

of 100 shares, which is held for trading financial instrument as per IAS 39.

Strike price of the calls is Rs.100 and stock price as on the balance sheet

date is Rs.120. Should the obligation be classified as an item of current

liability?

Case study 6

Current portion of non – current liability

Maruti Ltd has raised 10 million of Rs.100 9% Debenture in June 2006.

According to the terms of the debenture agreement 25% of the debenture

will be redeemed at par after 3 years, balance 25% after 4 years and balance

50% after 5 years. The entity finalises accounts every March. Should any

portion of the Debentures be classified as an item of current liability as on

31 March, 2009 under IFRS FS?

Case study 7

Is it a current liability?

Vrindavan Ltd has raised 9% Loans in June 2005 from a bank for a period of

5 years. Since it has adequate liquidity to repay the loan obligation it has

rescheduled the payment term and the loan will be paid on 30 June, 2007.Ir

finalises accounts every December. The agreement was modified as on 4

February, 2007 and the financial statements were authorized to issue on 15th

February 2007 should any portion of the loan be classified as an item of

current liability as on 31 December, 2006.

Case study 8 - Applicability of Going Concern

Kolahala Ltd has the following details of profit after tax over the last five

years (Rs. In Lakhs):

2003 (50) Lakhs)

2004 (250) Lakhs

2005 (120) Lakhs

2006(300) Lakhs

2007 (500) Lakhs

Because of the loss sustained by the entity during 2003-2007, it sets

constraint in accessing the capital market and even to bank finance.

The bank has refused to reschedule the existing payment schedule.

The entity has failed to pay interest on bank loan as well as debenture

interest for the years 2006 and 2007 because of liquidity constraint. The

lenders had granted delayed payment of interest in 2008.

It has schedule of payment 10%debentures of Rs.100 lakhs and 11% bank

loan of Rs. 50 Lakhs together with arrear interest. Furthermore, the entity

requires working capital investments of Rs.100 lakhs and Rs. 100 Lakhs

towards VRS Payment to employees who are to be retrenched.

Kolahala Ltd has 35%stake in another associate entity Z ltd which was

purchased in 2001 for Rs.300 Lakhs. Akroora Ltd. is interested in acquiring

that stake for Rs.200 lakhs and the current market price of Z ltd shares has

fallen because of capital market recession.

The majority shareholding group has agreed for a right issue to put

additional money in the business as part of revival scheme.

The management was confident that the company will earn profit in 2008.

But in 2008, profit after tax was (40 million).

The management viewed that the company is in revival process and would

have earned profit but suffered loss because of the global recession. It is now

uncertain about the market demand. It has already planned for closure of

production in January 2009 because of order booking position.

Is Kolahala Ltd a going concern in 2008 ?