Classification of Assets & Liabilities

Classification of Assets

• Fixed Assets are those which are acquired for long use in the business itself and not for resale. For example, plant and machinery, land and buildings, furniture and fixtures, patents and trade marks are Fixed Assets. 

• Current or Floating Assets are those that are meant to be converted into cash as soon as possible. Stock of goods, amount due from customers to whom goods have been sold on credit and balance at bank are examples of Current (or Floating) Assets.

• Wasting Assets are those Fixed Assets which have a Fixed Content, like coal in a coal mine; the value goes down as the contents are taken out. When the minerals have been taken out, the mine will become useless as a mine. 

• Liquid Assets are those Current Assets which are already in the form of cash or which can be readily converted into cash, such as Government Securities. 

• Intangible Assets are those Fixed Assets which cannot be seen or touched or felt. Goodwill (the value of one's name) is an intangible assets because there is not physical form to show it. Intangible assets are not necessarily useless.

• Fictitious Assets are valueless assets but shown as assets in the Financial Statements (such as useless trade marks) or expenses treated as assets (such as expenses incurred to establish a company-preliminary expenses).

Classification of Liabilities

• Fixed and Long-term Liabilities - Fixed Liabilities are those liabilities which are payable on the termination of the business such as capital of the proprietor, whereas long-term liabilities are those which will be redeemed after a long period of time e.g. long-term loans. 

• Current Liabilities - These are Liabilities which have to be redeemed in the near future, usually within a year. Trade Creditors, bank loans, bill payable etc. are examples of current liabilities. 

• Contingent Liabilities - These are not actual liabilities but their becoming actual liabilities depend on the happening of certain events. If such events do not occur, no liability is incurred. Liability in respect of pending suit is a contingent liability because it is only if and when suit is lost that the liability will be incurred. Bills discounted with a bank are also contingent liability because if the acceptor fails to meet the bill on due date, the firm will become liable to the bank. Such liabilities are not shown in balance sheet, usually a foot note is appended at the balance sheet for such liability.