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What are current and noncurrent assets?

What is the difference between current and non-current assets? Assets are "items" that are owned by a person or business. They should be split up into categories such as current and non-current.

When is an asset current and when should it be classified as non-current?

Posted in Business & Commerce, asked by lefe, 4 years ago. 2269 hits.

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That is correct, assets are items owned by the business.

The terms current and non-current refer to the lifespan of the asset. Some examples of assets would be Cash at Bank, Motor Vehicles, Inventories, Accounts Receivable, Land and Buildings, and Intangible Assets.

The question that needs to be asked is when the asset is likely to be realized, either through use or through sale.

Current assets refer to short term assets. These are assets that are intended for immediate use or sale and cover a period of 12 months.

Non-current assets refer to long term assets. These are assets that the business intends to hold onto for a period longer than 12 months.

Have a look at a couple of examples:

Cash at Bank:
In general, cash is used on a daily, weekly and month basis. Cash comes into the account and is paid out of the account as and when it is needed. This is a current asset. On the other hand, the business may have an investment account where specified amounts of money are held in the account for a set period of time. In this case, if the period is longer than 12 months, then that particular cash investment would be classified as a non-current asset.

Motor Vehicles:
These are usually classified as non-current assets as they will be used for more than 12 months. In the event that the business intends to sell a vehicle within the short term, this vehicle could be classified as a current asset. The owner's intention to sell would have to be proven. This could be proven based on advertisements listing the vehicle for sale.

Inventories:
In most cases, inventories are classified as current assets. The business wants to sell their stock as soon as possible and not hold onto excess goods.

As you can see, it depends on the intention of the owner or business. This can vary from case to case, however there are general guidelines to follow as noted above.

admin
4 years ago
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