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Assets

Meaning and characteristics of assets, classification into non-current, current, and fictitious assets with examples and Companies Act 2013 criteria.

Notes

Assets

Class 11 Accountancy — Accounting Terminology

Meaning and Characteristics of Assets

Assets
Economic resources of the entity which will give benefit in the future.

Assets are the properties (both tangible and intangible) owned by an entity or enterprise. They represent the economic resources of the business. In simpler terms, anything that will enable the firm to gain economic benefit in the future is considered an asset.

“Assets are future economic benefits, the rights, which are owned or controlled by an organisation or individual.” — Finney and Miller

“Assets are valuable resources owned by a business which are acquired at a measurable money cost.” — Prof. R.N. Anthony

Key Takeaways

  • Assets should be owned (property) by the business
  • May exist in tangible (physical) form or intangible form
  • Should have some value attached to it
  • Should be capable of being measured in money terms
  • Examples: Land, Building, Machinery, Furniture, Stock, Debtors, Cash & bank balances, Trademarks, Copyrights, Goodwill

Classification of Assets

Fixed Assets — Tangible vs Intangible

Fixed Assets
Non-current assets not held for resale, held to increase earning capacity.

Fixed assets are non-current assets of an enterprise that are not held for resale but with the primary purpose of increasing its earning capacity.

Current Assets Detail

Current Assets
Assets held for resale or conversion into cash within a short period, typically one year.

Key Takeaways

  • Examples: Goods purchased for resale, Debtors, Bills Receivable
  • Current assets are expected to be converted to cash within the operating cycle or 12 months

Fictitious Assets

Fictitious Assets
Assets coming into existence by an accounting entry.

Fictitious Assets are unique — they are neither tangible nor intangible assets. They represent losses that are not fully written off in the year they are incurred, but rather spread over multiple accounting periods.

Deferred Revenue Expenditure, such as large advertisement expenditure which provides benefits for more than one accounting period, is classified as a Fictitious Asset.

Classification as per Schedule III, Companies Act 2013

AspectCurrent AssetsNon-current Assets
Operating CycleExpected to be realized in or intended for sale or consumption in the company's normal operating cycleDo not meet criteria for current assets
Trading PurposeHeld primarily for the purpose of being tradedNot held for trading
12-Month RuleExpected to be realized within 12 months from the reporting date—
Cash EquivalentCash and Cash Equivalent unless restricted for ≥12 months after reporting date—
Operating Cycle means the time between the acquisition of an asset for processing and its conversion into Cash and Cash Equivalents. If the operating cycle cannot be reliably identified, it is assumed to be a period of 12 months.