Current and Fixed Assets

Assets are those items which are supposed to provide monetary benefits in the future to a company like a purchase of computer system is an asset which may provide benefits for coming four years or more.

Current Assets

Current assets are supposed to provide benefits for maximum one year or indented to consume within that period. These assets may be kept for sale and considered more liquid than fixed assets; more easily convertible to cash or cash equivalent. For example, Cash, inventories, account receivable, prepaid expenses and bank balances etc.

Fixed Assets

Fixed assets or non-current assets (also known as long-term assets) would usually last for more than one year and usually used in the production process of a company like plant & machinery, land and building etc.

Example

Suppose, you have an investment of $10,000, and want to start a business of fresh juice point, for this you will require a van, which will be used to carry fruit in bulks from fruit market, a decorated shop, grinders to make fresh juices and freezers etc. After purchasing required items, remaining cash in hand will be your current asset and all those assets which are supposed to utilized for more than one year like van, shop, freezers and grinders will be counted as fixed assets.

Difference between Current and Fixed Assets

Basis of Difference

Current Assets

Fixed Assets

Meaning Those items which may provide benefits for maximum one year. Those items which may be utilized for more than one year to gain monetary benefits.
Examples Cash at bank/hand, short term investments, inventories and debtors etc. Furniture & Fixture, vehicles, trademark and machinery etc.
Life time Expire within one year. Utilized for more than one year.
Depreciation No depreciation. These assets are depreciated to allocated costs over the assets’ useful life.
Valuation Cost or market value. Cost minus accumulated depreciation.
Financing Short term financing is used to acquire these assets. Long term financing is required to purchase these assets.
Sale of assets Will result in revenue profit and loss. Will result in capital profit or loss.

 

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