Learn about current vs non-current items — Hinglish notes

2.4.6 · Stock-Market › Financial Statements

Yeh Classification Kyun Zaroori Hai

Current/non-current split balance sheet ka liquidity lens hai. Yeh jawab deta hai:

Short-term survival: Kya company ke paas itne liquid assets hain ki turant ke debts cover ho sakein?
Capital structure: Kya business short-term debt (risky) se operations finance kar raha hai ya long-term capital (stable) se?
Operational efficiency: Kya inventories pile up ho rahi hain (bad current assets) ya fast turn over ho rahi hain (good)?

Is split ke bina, $10 M a sse t s a u r$ 5M liabilities wali company dekhnay mein healthy lagti hai—jab tak yeh nahi pata ki $9 M a sse t s b u i l d in g s hain (n o n - c u r r e n t) a u r$ 4M liabilities agli month due hain (current). Liquidity crisis seedha aankhon ke saamne chupi hui.

Definitions

Derivation: 12 Mahine Kyun?

One-year cutoff arbitrary nahi hai—yeh operating cycle concept se aata hai:

Step 1: Ek business cash → inventory → receivables → cash mein convert karta hai. Yeh operating cycle hai.

Step 2: Zyaatar companies ke liye, yeh cycle 12 mahine se kam mein complete ho jaati hai. Retailers weekly restock karte hain, manufacturers quarterly inventory turn karte hain.

Step 3: Accounting 12 mahine par standardize karta hai kyunki:

Yeh annual reporting periods ke saath align karta hai
Yeh typical credit terms se match karta hai (30-90 din payable, 1-year loans)
Seasonal industries ke liye ek poora business cycle capture karta hai

Yeh step kyun? Agar hum 6 mahine use karte, toh 9-mahine ke inventory cycle wali companies working capital ko galat classify karti. Agar hum 24 mahine use karte, toh operational liquidity aur strategic investments ka farq blur ho jaata.

Exception (dono taraf): Lambe operating cycle wale industries (shipbuilding: 18 mahine, real estate development: 3 saal) 12 mahine ki jagah apni operating cycle ki length use karte hain. 2 saal tak banana wala ek ship phir bhi current asset hai kyunki woh uss company ke cycle ke andar cash mein convert ho jaayega. IFRS ke under current liabilities par bhi yahi operating-cycle criterion laagu hota hai—us lambe cycle se judi trade payables aur accrued operating costs current classify hoti hain, chahe woh 12 mahine ke baad settle hon, kyunki woh usi working-capital loop ka hissa hain.

Current Assets: Breakdown

1. Cash and Cash Equivalents

Kya hai: Physical cash, bank balances, 90 din ke andar convert hone wale instruments (T-bills, money market funds)
Current kyun hai: Already liquid hai—koi conversion nahi chahiye
Example: ₹50 lakh checking account mein, ₹20 lakh 60-day treasury bills mein

2. Marketable Securities

Kya hai: Stocks, bonds jo <1 saal ke liye hold ki gayi hain aur public markets par jaldi bech sakte hain
Current kyun hai: Liquid markets conversion ko kuch dino mein allow karte hain
Example: ₹1 crore Nifty 50 ETF mein rakha hua, excess cash ke liye short-term parking ki tarah

3. Accounts Receivable

Kya hai: Customers ka bakaaya paisa (invoices bheje gaye, payment 30-90 din mein due)
Current kyun hai: Jab customers pay karenge toh cash mein badal jaayega
Example: Pichhle mahine ship kiye gaye goods ke liye ₹5 crore receivables

4. Inventory

Kya hai: Raw materials, work-in-progress, finished goods jo sale ka intezaar kar rahe hain
Current kyun hai: Bikenge → receivables → cycle ke andar cash banenge
Example: Warehouse mein ₹3 crore ke smartphones, ₹50 lakh ke steel coils

5. Prepaid Expenses

Kya hai: Advance mein kiye gaye payments (insurance, rent) jo 1 saal ke andar future benefit denge
Current kyun hai: Cash nahi hai, lekin agli 12 mahine mein cash outflow bachata hai
Example: ₹10 lakh annual insurance premium Jan 1st ko pay kiya gaya

Non-Current Assets: The Long Game

1. Property, Plant & Equipment (PP&E)

Kya hai: Land, buildings, machinery, vehicles—physical infrastructure
Non-current kyun hai: Saalon tak use hote hain, normal operations mein nahi bechte
Depreciation: Land ko chhodkar, inki value samay ke saath ghaati hai → balance sheet depreciation ke baad net value dikhata hai
Example: ₹50 crore ki factory, ₹10 crore ke delivery trucks (depreciation ke baad net book value)

2. Intangible Assets

Kya hai: Non-physical assets jo value rakhte hain: patents, trademarks, goodwill (acquisitions mein pay kiya gaya premium)
Non-current kyun hai: Saalon tak competitive advantage dete hain
Example: Drug formula par ₹2 crore ka patent (20 saal ki protection), ₹5 crore ki brand value

3. Long-term Investments

Kya hai: Subsidiaries mein equity stakes, maturity tak hold ki gayi bonds (>1 saal)
Non-current kyun hai: Strategic holdings hain, jaldi sale ke liye nahi
Example: Supplier company mein 30% ownership ₹15 crore valued

4. Deferred Tax Assets

Kya hai: Past losses ya timing differences se future tax benefits
Non-current kyun hai: Multiple saalon tak taxes offset karega
Example: ₹5 crore loss carry-forward (8 saalon mein usable) se ₹1 crore DTA

Current Liabilities: The Pressure Gauge

1. Accounts Payable

Kya hai: Suppliers ko inventory/services ke liye bakaaya paisa (30-60 din ke terms)
Current kyun hai: Credit period ke andar pay karna hoga warna supplier relationships khatam
Example: Raw material vendors ko ₹2 crore bakaaya

2. Short-term Debt

Kya hai: Bank loans, commercial paper jo 1 saal ke andar due hain
Current kyun hai: Turant cash outflow zaroori hai
Example: ₹50 lakh working capital loan jo 6 mahine mein mature ho raha hai

3. Accrued Expenses

Kya hai: Kharch jo ho gaye hain lekin abhi pay nahi kiye (salaries, utilities, interest)
Current kyun hai: Payment weeks/months mein due hai
Example: December ki ₹20 lakh employee salaries, Jan 5th ko pay ki jaayengi

4. Current Portion of Long-term Debt

Kya hai: Multi-year loan par agli saal ki installment
Current kyun hai: 12 mahine ke andar due hai, chahe original loan long-term tha
Example: ₹10 crore ke 5-year loan par is saal ₹1 crore due

5. Current Lease Liabilities

Kya hai: Lease obligations ka woh hissa (IFRS 16 / Ind AS 116 ke under) jo agli 12 mahine mein due hai
Current kyun hai: Bilkul long-term debt ki tarah, lease liability split hoti hai—lease payments ke agli 12 mahine current liability hain, baaki non-current hai
Example: ₹1 crore total liability wala 5-year office lease; ₹20 lakh agli saal due → ₹20 lakh current lease liability hai, ₹80 lakh non-current hai

Non-Current Liabilities: The Patient Creditors

1. Long-term Debt

Kya hai: Bonds, bank loans, mortgages jo >1 saal mein due hain
Non-current kyun hai: Growth/capex ke liye patient capital deta hai
Example: ₹100 crore ke 10-year bonds 8% interest par

2. Deferred Tax Liabilities

Kya hai: Timing differences se future mein dene wale taxes (accounting vs. tax ke liye depreciation methods alag hain)
Non-current kyun hai: Asset ki life mein reverse hoga
Example: ₹50 lakh DTL kyunki tax depreciation book depreciation se tez thi

3. Pension Obligations

Kya hai: Employees ko dene wali future retirement payments
Non-current kyun hai: Daskon tak pay ki jaati hain jab employees retire hote hain
Example: 500 employees ke liye ₹10 crore pension liability

4. Non-current Lease Liabilities

Kya hai: Lease obligations ka woh hissa jo 12 mahine ke baad due hai
Non-current kyun hai: Yeh future lease payments patient obligations hain, turant pressure nahi
Example: 5-year office lease par woh ₹80 lakh jo bacha hai, agli saal ka ₹20 lakh nikaln ke baad

Worked Example: Balance Sheet Classify Karna

Scenario: TechCorp ke paas neeche diye items hain. Har ek ko classify karo aur explain karo kyun.

Item	Amount (₹ Cr)	Classification
Office building	50	Non-current Asset (PP&E)
Laptops (3-year life)	2	Non-current Asset (PP&E)
Cash in bank	10	Current Asset (Cash)
Customer invoices (due 45 days)	8	Current Asset (Receivables)
Finished laptops in warehouse	5	Current Asset (Inventory)
Shares in startup (hold indefinitely)	3	Non-current Asset (LT Investment)
Supplier bills (due 30 days)	4	Current Liability (Payables)
5-year bank loan (year 2-5 balance)	20	Non-current Liability (LT Debt)
Same loan (year 1 payment)	5	Current Liability (Current portion LT Debt)
Employee salaries for Dec (unpaid)	1	Current Liability (Accrued expense)

Yeh step kyun?

Building: 20+ saal use hoga → non-current
Laptops: 3-year life hone ke bawajood, yeh equipment hai, sale ke liye inventory nahi → non-current
Finished laptops: Yeh bechne ke liye hain, is saal cash mein convert honge → current
Year 1 loan payment: Chahe loan long-term hai, yeh hissa 12 mahine ke andar due hai → har saal current mein reclassify hota hai

Key Ratios: Liquidity Tests

Example: TechCorp ke paas ₹23 Cr current assets hain (10+8+5), ₹10 Cr current liabilities (4+5+1). $Current Ratio = \frac{23}{10} = 2.3$ Interpretation: Comfortable cushion hai—bills 2.3× pay kar sakti hai.

Example: TechCorp ka quick ratio = (23 - 5) / 10 = 1.8 Interpretation: Inventory bechne ke bina bhi, debts 1.8× cover ho sakte hain.

Common Mistakes

Common mistake Mistake 3: "Prepaid expenses cash ki tarah hain"

Kyun sahi lagta hai: Humne kisi cheez ke liye paisa pay kiya, aur woh balance sheet ke asset side par "current asset" ke roop mein baitha hai—toh lagta hai jab cash tight ho tab hum isko use kar sakte hain.

Kyun galat hai: Aap prepaid rent ya prepaid insurance ko waapis cash mein convert nahi kar sakte. Jab ek saal ka rent advance mein pay kar diya, woh paisa gaya; aapke paas sirf office occupy karne ka right hai—koi aise claim nahi jo liquidate kar sako. Yeh current asset tab classify hota hai kyunki yeh agli 12 mahine mein ek future cash outflow bachata hai, na ki isliye ki yeh khud liquid hai.

Fix: Real liquidity judge karte waqt, prepaid expenses nikaal do. Quick ratio ya aur bhi strict cash ratio par rely karo $= \frac{Cash + Marketable Securities}{Current Liabilities}$ , jo sirf truly liquid items count karta hai (cash, marketable securities, aur reliable receivables).

Example: Ek startup ₹12 Cr current assets dikhata hai: ₹1 Cr cash, ₹1 Cr receivables, aur ₹10 Cr prepaid cloud-hosting fees jo saal bhar ke liye upfront pay ki gayi hain. ₹4 Cr current liabilities ke against current ratio = 3.0 strong lagta hai. Lekin jab ₹4 Cr ka supplier bill aata hai, company ke paas sirf ₹2 Cr realizable cash hai—₹10 Cr prepaid hosting refund nahi ho sakta. Quick/cash ratio = 0.5 → liquidity crisis flattering current ratio ke bawajood.

Diagram

Figure — Learn about current vs non-current items

Yeh diagram ek typical balance sheet split dikhata hai, liquidity gradient ke saath: sabse zyada liquid upar (cash), sabse kam liquid neeche (intangibles). Current/non-current line 12 mahine par clearly marked hai.

Recall Ek 12-saal ke bacche ko explain karo

Socho tumhare paas ek piggy bank hai (₹500 cash), ek bicycle hai (₹2000 worth lekin school ke liye chahiye), aur ek lemonade stand hai (₹300 ke lemons aur sugar). Tumhara dost tumhara ₹100 bakaaya hai homework mein help ke liye (agli week due).

Ab tumhari mom kehti hai, "Agli month summer camp ke liye ₹400 pay karne honge."

Current stuff = woh cheezein jo camp ke liye jaldi cash mein badal sako:

Piggy bank ₹500 (instant)
Dost ka ₹100 (agli week)
Lemonade supplies ₹300 (is weekend lemonade becho) Total: ₹900 → Tum safe ho! ₹400 pay kar sakte ho.

Non-current stuff = woh cheezein jo saalon tak rakho ge:

Bicycle (tum ise sirf camp fees pay karne ke liye nahi bechoge!) Companies bhi yahi karti hain: "Kya hum agli month ke bills pay kar sakte hain?" → Current assets check karo. "Humari long-term value kya hai?" → Non-current assets check karo.

Agar piggy bank mein ₹50 hote aur bicycle ₹2000 ki hoti, tum "asset-rich but cash-poor" hote—camp pay nahi kar sakte chahe tumhare paas valuable cheezein hain. Yeh ek liquidity crisis hai.

Connections

2.4.01-Introduction-to-Balance-Sheet - Overall structure jahan current/non-current split appear hota hai
2.4.07-Working-Capital-Management - Current assets minus current liabilities = working capital
2.4.09-Liquidity-Ratios - Current ratio, quick ratio calculations
2.5.03-Cash-Flow-from-Operations - Current assets/liabilities operating cash flow ko kaise affect karte hain
3.2.01-Debt-to-Equity-Ratio - Capital structure analysis mein non-current debt use karta hai
4.1.05-Operating-Cycle-Analysis - 12-month cutoff kyun exist karta hai, isse link hai

#flashcards/stock-market

Current asset ki definition kya hai?

Ek asset jo ek saal ke andar, ya operating cycle ke andar (jo bhi zyada lamba ho), cash mein convert hoga, bikega, ya consume hoga.

Non-current liability ki definition kya hai?

Balance sheet date se ek saal ke baad (aur operating cycle ke bahar) due obligation.

Inventory ko current asset kyun maana jaata hai, chahe woh liquid nahi hai?

Kyunki yeh company ke operating cycle ke andar—typically 12 mahine se kam—bikega aur cash mein convert ho jaayega (receivables ke zariye).

Current ratio kya measure karta hai?

Current assets ka current liabilities se ratio—short-term obligations pay karne ki ability indicate karta hai. Formula: Current Assets / Current Liabilities.

Quick ratio current ratio se zyada conservative kyun hai?

Yeh current assets se inventory nikaal deta hai kyunki inventory sabse kam liquid current asset hai aur crisis mein jaldi cash mein convert nahi ho sakti.

"Current portion of long-term debt" kya hota hai?

Ek long-term loan ki woh installment jo agli 12 mahine mein due hai—non-current se current liability mein reclassify hoti hai.

Balance sheet par lease liabilities kaise split hoti hain?

Current portion (12 mahine ke andar due lease payments) aur non-current portion (12 mahine ke baad due payments) mein, bilkul long-term debt split hone ki tarah.

Non-current assets ke teen examples do

Property/buildings (PP&E), patents/goodwill (intangibles), doosri companies mein equity investments (long-term investments).

Prepaid expenses ko current assets kyun classify kiya jaata hai agar inhe cash mein convert nahi kar sakte?

Kyunki yeh agli 12 mahine mein already paid expenses cover karke economic benefit (cash outflow bachana) denge—na ki isliye ki yeh liquid hain.

Operating cycle exception kya hai, aur kya yeh liabilities par bhi laagu hota hai?

Jinki operating cycles 12 mahine se lambi hain, woh companies assets AND liabilities ko apni operating cycle ke hisaab se classify karti hain. IFRS ke under yahi operating-cycle criterion current liabilities par bhi laagu hota hai (jaise lambe cycle mein trade payables).

Cash ratio kya hai aur yeh sabse strict liquidity test kyun hai?

(Cash + Marketable Securities) / Current Liabilities. Yeh sirf truly liquid assets count karta hai, inventory, receivables, aur prepaid expenses exclude karta hai.

1.0 se neeche current ratio red flag kyun hai?

Iska matlab hai current liabilities current assets se zyada hain—company liquid resources se short-term debts cover nahi kar sakti, potential insolvency signal karta hai.

Teen types of current liabilities batao

Accounts payable (supplier bills), short-term debt (loans due <1 saal), accrued expenses (unpaid salaries/interest); current lease liabilities aur current portion of long-term debt bhi count hote hain.

Deferred tax assets kya hain aur yeh non-current kyun hain?

Past losses ya timing differences se future tax benefits jo multiple saalon mein tax payments reduce karenge, sirf agli 12 mahine mein nahi.