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KNOW ABOUT ASSETS

Q1 What are Assets?

As per IFRS Foundation, an asset is a resource controlled by the entity as a result of past events
and from which future economic benefits are expected to flow to the entity. In layman’s
language, an asset is any possession having a present or future value to the entity. An asset is
classified under two different categories viz. Non-Current and Current. The detailed
classification of assets is as under:

Q2 What are non-current assets?

Non-current assets are all those assets that an entity intends to keep with the business for a long
period of time (usually over one year). Most of these assets directly contribute to the core
business activities of the business. Non-Current Assets are classified into the following sub-
categories:
a) Property, Plant and Equipment: All tangible current assets such as land, buildings,
machinery, office equipment, furniture, fittings, vehicles, etc. which are used in business
operations
b) Capital Work-in-Progress: Property, Plant or Equipment which are in the process of
completion but have not completed yet such as a building under construction
c) Intangible Assets: All assets which contribute to the business operations but are not in
physical existence and hence cannot be seen or touched. Goodwill, Trademarks, Copyrights,
Licenses, Patents, Brands, etc. are examples of intangible assets
d) Intangible Assets under development: these include those intangible assets on which
expenditure is being incurred but has not yet translated into a usable asset such as
development expenditure on a new drug formula
e) Financial Assets: Assets that are created through contractual obligations and expected to
provide benefits or get liquidated in cash or cash equivalents. Loans given to subsidiary or
holding companies or investments done in other entities are examples of financial assets
f) Other Non-Current Assets: Residual Head
Q3. What constitutes non-current investments?
All those assets which are intended to be kept for a long term by the management but are not
operationally used in the business directly are covered under this category. These usually include
investments made in subsidiaries, joint ventures and associates. It also includes investment in
property, which is not intended for direct business use. Any long-term investment in financial
instruments (like bonds or FD’s) is also classified as a non-current investment.
Q4 What items may be included in Other Non-Current Assets?
This is a residual heading and usually includes long term trade receivables i.e., credit sales which
will be recovered in the long term
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Q5 What are current assets?

Any asset, which has a short life span or is intended to be kept for short term (usually less than a
year) are classified as current assets. These assets lose their identity (maybe get converted into
any other asset) in a short period of time. Current Assets are further classified as:
a) Inventories: Inventory or stock represent goods which are either held for sale in the normal
course of business (i.e., goods which business usually sells) or will be used in the production
of such goods (i.e., input to the goods which a business sells). Inventories are further
classified as Finished Goods (produced goods ready to be sold); Stock-in-Trade (purchased
goods ready to be sold – traded goods); Work-in-Progress (goods which are under
manufacturing but not fully processed) and Raw Material
b) Financial Assets: All the current assets which are expected to convert in cash or cash
equivalent. These include:
i. Current Investments: Investments which are intended to be kept for a short period of
time (investment in shares for quick profits, bank deposits for a short period of time,
etc.)
ii. Trade Receivables: Amount due from customers to whom the goods or services were
sold on credit
iii. Loans and Advances: Any loan or advance is given for a short period of time (like
loans given to suppliers for supporting them in production of raw material)
iv. Cash and Cash Equivalents: Cash available in hand and any other asset which can be
rapidly liquidated into cash (like bank balance)
c) Current Tax Assets: Any income earned by the business in a financial year (FY) is assessed
to tax in the next year, also called Assessment Year (AY). In other words, the final tax
liability is determined in FY. However, taxation laws require the businesses to deposit
Advance Tax in the FY itself, based upon estimated income. This advance tax deposited is a
current asset as it will help in meeting the final liability calculated in AY
d) Other Current Assets: Residual Head. Usually includes any expense which a business has
prepaid