Assets and Their Classification

What is Asset?

An asset is something owned or operated by a business entity that will provide future benefits to the organization. The asset is the main driving force of a business.

In other words, the asset is the unexpired portion of cost i.e. the unused part of the cost is an asset.

Therefore, the portion of the cost which is left unused for future income is considered as the asset of the business.

Examples of assets are Land, Building, Inventory, Goodwill, Cash, Bank, Preliminary expenses, etc.

Classification of Assets

The classification of assets is given below.

Current Assets

Assets that are short-lived, usually limited to a particular financial year or period, are known as current assets.

The duration of such a property is from 2 or 3 weeks to two or three months and the maximum is one year or 12 months. Such property can be converted into cash for a short period of time if necessary.

Features of Current Assets:

  1. It provides benefits within a period of time.
  2. Current assets can quickly be converted into cash.
  3. The principle of conservatism is applied for the evaluation of current assets. 

Examples of Current Assets:

  • Cash in Band
  • Cash at Bank
  • Accounts Receivable
  • Notes Receivable
  • Supplies in Hand
  • Merchandise Inventory
  • Prepaid Expenses
  • Advance to Employees
  • Short Term Investment

Liquid Assets

Liquid assets are called cash assets and convertible assets in cash. This type of property business can be used to pay the immediate debt.

 Examples of Liquid Assets:

  • Cash in Hand
  • Cash at Bank
  • Notes Receivable
  • Marketable Securities

Fixed Assets

Assets that are collected for long-term use and those used to carry out business operations are called fixed assets. Such assets can be used for business from one or two years to one or two hundred years.

 Features of Fixed assets:

  1. Fixed asset provides benefits for multiple accounting periods.
  2. Depreciation is imposed on them.
  3. Fixed asset has a long life and the product is not sold.
  4. Fixed assets are recorded at the purchase price according to historical pricing or purchase price policy.

Examples of Fixed Assets:

  • Furniture and fittings
  • Office Equipment
  • Motor Vehicle
  • Delivery Van
  • Plan and Machinery
  • Leasehold Property
  • Land and Building
  • Freehold Premises
  • Goodwill

Amortizable Assets

Continued use of a property which is constantly reduced or decayed and at one time completely wiped out is called an amortizable asset.

Examples of Amortizable Assets:

  • Leasehold Property
  • Patent
  • Trademark
  • Coal Mine
  • Gas Fields
  • Forest

Real Assets

An asset that has real existence or is unseen to the eye, but can be bought in real terms, i.e. one who has a market value is called real property.

 Example of Real Assets:

  • Land
  • Building
  • Machinery
  • Goodwill
  • Patent
  • Trademark.

Fictitious Assets

 An asset that has no real existence, which has no market value or cannot be bought, is called a fictitious asset.

Examples of Fictitious Assets:

  • Preliminary Expenses
  • Share Discount
  • Underwriter Commission

Tangible Assets

 An asset that has a real existence and which is visible is called tangible assets. These assets have an external appearance and can be touched.

Examples of Tangible Assets:

  • Furniture
  • Building
  • Equipment
  • Vehicle
  • Vessel
  • Land

Intangible Assets

Assets that do not have a real existence and which can’t be touched are considered intangible assets.

Examples of Intangible Assets:

  • Copyright
  • Patent
  • Goodwill
Assets and Their Classification
Pic: Assets and their classification

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