Introduction
The current portion of a lease liability is the part of its carrying amount that will be settled within twelve months of the reporting date. It is the capital element of the lease payments due in that period, plus any interest already accrued at the reporting date. The non-current portion is everything else: the balance left on the amortisation schedule after the last payment due within those twelve months.
The next twelve months' lease payments are not the current portion. Part of each payment is interest that has not yet accrued, and that interest is not a liability at the reporting date.
This article builds on calculating the lease liability, which covers the initial measurement and the amortisation schedule the split is taken from.
The Classification Requirement
IFRS 16.47 requires a lessee to present lease liabilities separately from other liabilities, or to disclose the line items that include them. It does not itself set a current and non-current split. That comes from the general requirements for classifying liabilities in IAS 1, carried into IFRS 18 without substantive change.
A liability is current where it is due to be settled within twelve months after the reporting period, or where the entity has no right at the reporting date to defer settlement for at least twelve months. Lease liabilities provide financing rather than forming part of working capital, so the operating cycle test does not apply to them. The twelve-month test does.
Liquidity presentation
Entities that present assets and liabilities in order of liquidity, typically banks and insurers, do not split the lease liability on the face of the statement of financial position. They still disclose the amount expected to be settled after more than twelve months.
Calculating the Split
The split is read from the amortisation schedule:
Non-current portion = schedule balance after the last payment due within 12 months
Current portion = carrying amount at the reporting date − non-current portion
The current portion therefore consists of two parts:
- Capital repaid by the payments falling due in the next twelve months.
- Interest accrued from the last payment date to the reporting date, which the next payment will settle.
Where the payment dates coincide with the reporting date, the second part is nil and the current portion is simply the capital element of the next year's payments.
Practical Example
A company leases equipment from 1 July 2025 for five years. Payments of 200,000 are made annually in arrears on 30 June, and the incremental borrowing rate is 10%. The company's year end is 31 December.
The lease liability at commencement is 200,000 × 3.790787 = 758,157.
| Year ending 30 June | Opening balance | Interest (10%) | Payment | Closing balance |
|---|---|---|---|---|
| 2026 | 758,157 | 75,816 | (200,000) | 633,973 |
| 2027 | 633,973 | 63,397 | (200,000) | 497,370 |
| 2028 | 497,370 | 49,737 | (200,000) | 347,107 |
| 2029 | 347,107 | 34,711 | (200,000) | 181,818 |
| 2030 | 181,818 | 18,182 | (200,000) | — |
At each year end, six months of the current period's interest has accrued (time-apportioned). The split is:
| Balance | 31 Dec 2025 | 31 Dec 2026 |
|---|---|---|
| Schedule opening balance | 758,157 | 633,973 |
| Interest accrued for six months | 37,908 | 31,699 |
| Carrying amount | 796,065 | 665,672 |
| Non-current: balance after next 30 June payment | 633,973 | 497,370 |
| Current portion | 162,092 | 168,302 |
At 31 December 2025, the current portion of 162,092 is the capital element of the 30 June 2026 payment (200,000 − 75,816 = 124,184) plus the 37,908 of interest accrued to the reporting date. The remaining 37,908 of that payment is interest for January to June 2026, which is not yet a liability.
The current portion increases each year, as it does for any amortising liability: the balance falls, so less of each payment is interest and more is capital.
Methods That Misstate the Split
Several shortcuts produce a figure close enough to look plausible. Using the 31 December 2025 figures above:
| Method | Result | Effect |
|---|---|---|
| Next twelve months' payments in full | 200,000 | Overstated by 37,908 of interest that accrues after the reporting date |
| Carrying amount now less carrying amount in twelve months | 130,393 | Understated: the 665,672 at 31 December 2026 includes 31,699 of interest that accrues after the reporting date |
| "Within one year" band of the maturity analysis | 200,000 | Undiscounted cash flows, not a carrying amount |
| Schedule balance after the next payment | 162,092 | Correct |
Comparing carrying amounts twelve months apart gives the correct answer only where payment dates coincide with the reporting date, so that no interest is accrued at either date.
Why not the present value of the next twelve months' payments?
Discounting the 30 June 2026 payment for six months at 10% gives 190,693. This is arguably a closer measure of the value of the cash falling due within twelve months, but it is not the IFRS split. The liability is a single amortised cost balance, and each payment settles the interest accrued on the whole balance, including the non-current part, before it reduces capital. Only 162,092 of today's carrying amount is settled by that payment. The present value approach moves interest that arises on the non-current balance into the current portion, so it overstates it.
Specific Situations
Payments in Advance
Where an annual payment falls due on the first day after the reporting date, all interest on the outstanding balance has already accrued. The whole payment is current, and the balance after it is non-current.
Monthly or Quarterly Payments
The same rule applies across more payments. The non-current portion is the schedule balance after the last instalment due within twelve months. With monthly payments in arrears at month end, accrued interest at the reporting date is nil and the current portion is the capital element of the next twelve instalments.
Final Year of the Lease
Once all remaining payments fall within twelve months, the entire liability is current. Where an extension option is reasonably certain to be exercised, the lease term, and therefore the liability, already includes the extension period, and the later payments remain non-current.
Remeasurements and Modifications
A modification or a remeasurement for index-linked payments produces a new schedule. The split at the next reporting date is taken from that revised schedule.
Covenants and Default
Lease agreements seldom contain financial covenants, but some include cross-default clauses linked to other borrowings. Where a breach at the reporting date makes the lease liability payable on demand, the whole liability is current, unless the lessor agreed before the reporting date to a period of grace ending at least twelve months after it. Covenants that must only be complied with after the reporting date do not affect classification but are disclosed.
Presentation and Disclosure
The current and non-current portions are presented within current and non-current liabilities on the face of the statement of financial position, or as a single line with the split disclosed in the notes.
The IFRS 7 maturity analysis of undiscounted lease payments is a separate disclosure and does not reconcile to the split without deducting future finance charges. The right-of-use asset is not split: it is presented as non-current in full.
In the statement of cash flows, the principal and interest elements of the payments are classified on their own terms. The current portion has no effect on that classification.
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Conclusion
The current portion of a lease liability is the part of today's carrying amount that is settled within twelve months: the capital element of the payments due in that period, plus interest already accrued. Reading the non-current balance directly from the amortisation schedule, after the last payment within twelve months, gives the correct split whatever the payment timing, and excludes interest that has not yet accrued.
For clarification, guidance, or feedback on our article, please reach out to us at insight@leash.co.za.