Last update 06/08/2019
An entity shall classify an asset as a current asset when:
- It expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
- It holds the asset primarily for the purpose of trading it;
- It expects to realise the asset within twelve months after the reporting period; or
- The asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
Current assets are precisely defined because this is the class of assets that is sensitive to overstatement (ratio-analysis of financial statements, credit rating agencies). Also it is easier to determine the current nature of an asset than the non-current nature.
Assets
An asset is something which has an economic value and held by an organisation for benefit in present and future. Assets are broadly classified into two categories based on the time period within which they are expected to be converted into cash or used in the business:
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Current Assets: Assets which are likely to be converted into cash or used up within one year are classified under this category. In other words, such assets are converted back into cash within one year period. These Assets reveal information about the operating activities of a company. Examples: Cash, Inventory, Prepaid Expenses, Accounts Receivables, Marketable Securities, Other Current Assets etc.
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Non-Current Assets: Such Assets are not owned for the purpose of converting them into cash within a year. Non-Current Assets are basically long-term assets having bought with the intention of using them in the business and their benefits are likely to accrue for a number of years. These Assets reveal information about the investing activities of a company. Non-Current Asset can be either Tangible or Intangible. Examples: Fixed Assets such as Property, Plant, Equipment, Land & Building, Long-term Investment in Bonds and Stocks, Goodwill, Patents, Trademark etc.
Current asset
Current asset
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