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Discussion

A current asset is one expected to be converted to cash within

  • A.the asset's depreciable life
  • B.the period of the longest loan outstanding
  • C.one year or the operating cycle
  • D.five years

Answer: C

Cash, receivables, inventory and prepayments qualify, and the classification matters because the liquidity ratios compare them with the liabilities falling due in the same period. Plant and buildings are non-current by contrast.

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