resources owned by the business. Assets of a business include cash, stock, plant and machinery, etc. A) Classification of assets According to the nature of assets, they may be classified into the following: a) Fixed assets Fixed assets are those assets which are acquired or constructed for continued use in the business and last for many years such as land and building, plant and machinery, motor vehicles, furniture, etc. According to Finney and Miller, “Fixed assets are assets of a relatively permanent nature used in the operations of business and not intended for sale.” As the purpose of keeping such assets is not to sell but to use them, changes in their realisable values are ignored and these are always shown in the balance sheet at cost less depreciation.
Fixed assets can be classifed into i) Tangible fixed assets ii) Intangible fixed assets. i) Tangible fixed assets Tangible fixed assets are those which have physical existence or which can be seen and felt. Examples: plant and machinery, building and furniture. ii) Intangible fixed assets Intangible fixed assets are those which do not have any physical existence or which cannot be seen or touched.
Examples: goodwill, trade-marks, copy rights and patents. Intangible assets are as much valuable as tangible assets because they also help the firm in earning profits. For example, goodwill helps in attracting customers and patents represent the know-how which helps in producing the goods. Cash in hand and stock are tangible assets.
b) Current assets Current assets are those assets which are either in the form of cash or can be easily converted into cash in the normal course of business or within one year. In the words of Hovard and Upton, “The current assets are usually defined as those assets which are convertible into cash through the normal course of business within a short time, ordinarily in a year.” Current assets include cash in hand, cash at bank, short-term investments, bills receivable, debtors, prepaid expenses, accrued income, closing stock, etc. Among these, closing stock is valued at cost or realisable value whichever is lower and debtors are