Which of the following is not a criterion for classifying an item as a current asset or liability?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Held primarily for long-term investment.
Items held primarily for long-term investment would fall under non-current assets.
The criteria for classifying an item as a current asset or liability is:
a) Involvement in the entity's operating cycle: If the item is involved in the entity's operating cycle, it is classified as a current asset or liability.
b) Expected realization/settlement within twelve months: If an asset is expected to be realized (converted into cash or cash equivalents) or a liability is expected to be settled within twelve months after the reporting period, it is considered a current item.
c) Held primarily for trading purposes: If an item is held primarily for trading purposes, such as investments held for short-term profit, it is classified as a current asset.