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    Assets and Liability

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    Dheeraj Kumar
    This document discusses the classification of assets and liabilities on a balance sheet. It outlines four categories of assets: fixed assets like land, buildings, and equipment; investments in securities; current assets that are converted to cash within a short period; and fictitious assets with no market value like preliminary expenses. It also describes three categories of liabilities: fixed liabilities not due within a year; current liabilities due within a year; and contingent liabilities that may or may not occur in the future. Proper classification is necessary for the balance sheet to provide meaningful financial information.

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    Assets and Liability

    Uploaded by

    Dheeraj Kumar
    16 views2 pages
    This document discusses the classification of assets and liabilities on a balance sheet. It outlines four categories of assets: fixed assets like land, buildings, and equipment; investments in securities; current assets that are converted to cash within a short period; and fictitious assets with no market value like preliminary expenses. It also describes three categories of liabilities: fixed liabilities not due within a year; current liabilities due within a year; and contingent liabilities that may or may not occur in the future. Proper classification is necessary for the balance sheet to provide meaningful financial information.

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    This document discusses the classification of assets and liabilities on a balance sheet. It outlines four categories of assets: fixed assets like land, buildings, and equipment; investments in securities; current assets that are converted to cash within a short period; and fictitious assets with no market value like preliminary expenses. It also describes three categories of liabilities: fixed liabilities not due within a year; current liabilities due within a year; and contingent liabilities that may or may not occur in the future. Proper classification is necessary for the balance sheet to provide meaningful financial information.

    Copyright:

    © All Rights Reserved
    Download as TXT, PDF, TXT or read online from Scribd
    Download as txt, pdf, or txt
    16 views2 pages

    Assets and Liability

    Uploaded by

    Dheeraj Kumar
    This document discusses the classification of assets and liabilities on a balance sheet. It outlines four categories of assets: fixed assets like land, buildings, and equipment; investments in securities; current assets that are converted to cash within a short period; and fictitious assets with no market value like preliminary expenses. It also describes three categories of liabilities: fixed liabilities not due within a year; current liabilities due within a year; and contingent liabilities that may or may not occur in the future. Proper classification is necessary for the balance sheet to provide meaningful financial information.

    Copyright:

    © All Rights Reserved
    Download as TXT, PDF, TXT or read online from Scribd
    Download as txt, pdf, or txt
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    Classification of Assets and Liabilities

    Gazu Lakhotia
    FOLLOW
    Classification of Assets and Liabilities Proper classification of assets and
    liabilities is necessary as otherwise the Balance Sheet may fail to provide
    meaningful information. The various items of assets and liabilities in the Balance
    Sheet should be properly grouped. Classification of Assets

    Classification of Assets and Liabilities

    Proper classification of assets and liabilities is necessary as otherwise the


    Balance Sheet may fail to provide meaningful information. The various items of
    assets and liabilities in the Balance Sheet should be properly grouped.

    Classification of Assets

    Assets may be divided into the following categories.

    1. Fixed Assets: These assets are of a permanent nature. These are acquired for the
    purpose of generating revenue and are not meant for resale. Examples of fixed
    assets are : land, buildings, plant and machinery, motor vehicles, furniture and
    fixtures, patents, goodwill, etc. As the purpose of these assets is use, changes in
    their market value are ignored. These assets are shown in the Balance Sheet at cost
    less depreciation, giving details about both the figures. Total of fixed assets is
    called gross block, Gross block minus depreciation is known as net block.

    The fixed assets which have a limited useful life and which depreciate rapidly are
    called wasting assets, e.g., mines, quarries, etc. Goodwill and patents which
    cannot be seen are known as intangible assets. Assets like plant and machinery,
    stock, cash, etc., can be seen and felt, and are therefore called tangible assets.

    2. Investments: These include the money invested in various kinds of securities.


    Investments may be of two types � long term investments and short term investments.
    Long term investments are treated as fixed assets whereas short term investments
    are treated as current assets.

    3. Current Assets: These assets are acquired and held for consumption or resale in
    the ordinary course of business. These are converted into cash within a short
    period of time. Current assets include cash and bank balances, sundry debtors,
    short term loans, closing stock, prepaid expenses, interest receivable on
    investments and other accrued income, advances against supply of raw materials.
    These assets are also known as circulating assets.

    4. Fictitious Assets: These assets are not represented by possession of any


    property and, therefore, have no market value. Preliminary expenses, discount on
    issue of shares and debentures, etc are examples of fictitious assets. These are to
    be written off against Profit and Loss Account.

    Classification of Liabilities

    Liabilities may be classified as follows.

    1. Fixed Liabilities: These liabilities are repayable after a long period of time.
    These are not repayable within a short period or during the operating cycle of
    business. Long term loans, loans or mortgage, and debentures are examples of fixed
    liabilities.
    2. Current Liabilities: These liabilities are repayable within a year or in the
    near future. These include trade creditors, bills payable, outstanding expenses,
    bank overdraft, etc.

    3. Contingent Liabilities: These are anticipated liabilities. These are uncertain


    and may or may not arise in future on the happening of a certain event. If the
    contemplated event occurs, a contingent liability becomes a real liability.
    Liability on bills discounted, disputed claims or liability under a damage suit,
    guarantee for a loan is examples of contingent liabilities.

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