Assets

Definition: Assets refers to the resources of economic value which are owned and controlled by a business entity, owing to events in the past, which are expected to generate monetary benefit in future. In the balance sheet, assets appear in the second part, i.e. after equity and liabilities.

Classification of Assets

Assets are classified into two major categories, i.e. non-current assets and current assets discussed as under:

  1. Non-Current Assets: The assets which are acquired by the business for long term use, to raise the profit potential of the company and whose total value will not be realized in a financial year is called as Non-current assets or Long term assets. Expenses incurred to acquire these assets are capital in nature.
    • Fixed Assets: As the name suggest, fixed assets are the capital assets which are acquired by the business for a fixed term and are not expected to be consumed or converted during the ordinary course of business. Here, the word ‘fixed asset’ means the resources which are supposed to last long and remain in use for more than one accounting year. While entering in the Position statement, i.e. Balance Sheet, these assets usually appear in their in the book value, which is calculated by deducting depreciation from the purchase price.
      1. Tangible Assets: Tangible Fixed Assets are the assets which can be seen and touched, i.e. they are available in their material form. These assets are land, building, vehicles (used for business purpose only), plant and machinery, equipment, furniture and fixtures, etc. which are owned by the enterprise for business use only and not for sale, consumption or personal use. These assets can be used as collateral security to extend loans for the enterprise.
      2. Intangible Assets: These indicate intellectual property, i.e. the long term assets which are not in physical form. Further, intangible assets are classified as definite intangible assets and indefinite intangible assets. In case of definite, tangible assets, the assets are there with the company for a definite, i.e. fixed term, and includes patent, copyright, trademark, franchises, etc. On the other hand, indefinite intangible assets are those that remain with the company, until it continues, such as goodwill, brand name, etc.
    • Non-Current Investments: As the name signifies, these are the long term investments whose value will be received after a definite term, usually more than a year.
    • Long-Term Loans and Advances: The loans and advances provided by the company as debt, to individuals or companies for more than a year.
  2. Current Assets: These are the assets which a company holds for a short period only. Current assets are supposed to be sold or consumed within a period of one year. The cash generated by selling these assets is used to funds business operations. It includes cash and cash equivalents, debtors, bills receivable, inventory, prepaid expenses, short term loans and advances, and marketable securities such as treasury bills.

Hence, assets are nothing but the property that a company owns, having financial value, that is capable of inducing cash flows. At the time of emergency, these assets can be used to meet the business obligations.

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