One of the most important tasks of the enterprise is the preparation of reports, the correct display of assets and a clear understanding of how much property is owned on the company's balance sheet. Important is their liquidity. In this case, it is necessary to classify everything into short and long-term (non-current) assets.
Introductory information
For accounting, it is advisable to be guided by International Financial Reporting Standards (IFRS). They are well suited to assess the solvency and liquidity of the organization as a whole. But before we get started, let's find out what assets are. This means property belonging to an individual / legal entity. If we talk about enterprises, then they can have current and long-term assets on the balance sheet. In the first case, we mean resources that are converted into monetary terms per one operating cycle. Long-term assets - this is usually what is acquired and maintained on the balance sheet over a significant period of time. Most often they are included in the capital of the main enterprise.
short info
What are short-term assets and long-term assets? In order not to get confused, let's briefly analyze them:
- Current assets. Intended for use / sale during the operating cycle. But the term should not exceed twelve months from the reporting date. May be presented in cash or equivalent. These include customer / customer debt, stocks, marketable securities. Also, short-term assets are liabilities that must be paid for the operating cycle, but not more than twelve months. They mean debts to customers, suppliers, interest payments, dividends, income tax, bank overdrafts.
- Long-term assets. This is something that is on the balance sheet for more than one operating cycle and cannot be quickly converted into cash. They are purchased for use in the process. Not intended for further resale.
Read more about long-term assets.
They are necessary to ensure the enterprise. Often they are technical equipment, due to which products are manufactured and individual works are implemented. In connection with the constant use in the economic process, their cost is changing. This affects production costs, enterprise competitiveness and financial profit. During the activity, the cost is constantly differentiated. The process of formation and subsequent use of long-term assets directly depends on existing cash financing. After all, finance is necessary to acquire assets, cover costs, to replace and eliminate obsolete fixed assets, to increase their size.
About nature
Long-term assets are always high costs. After all, permanent property has been used for a long time. It is important that they can be covered with own capital, and at the same time, the existing regime for the use of fixed assets is not violated. Also, this type of asset can act as borrowed capital and take the form of long-term investments.
About species diversity
Depending on the functional purpose, there are:
- Fixed assets. This equipment, facilities, buildings.
- Intangible assets. These are patents, the right to use resources, and the like.
- Incomplete tangible assets. Represented by unfinished construction and uninstalled equipment.
- Long-term financial assets. This is an investment and other financial instruments.
Depending on what type of activity is serviced, assets are allocated:
- To meet the needs of staff.
- Serving operational activities.
- Involved in the investment activities of the enterprise.
The form of ownership distinguishes:
- Own assets.
- Leased.
Also, depending on the nature of use, there are:
- Assets that are used to directly participate in investment activities.
- Not applicable, having lost functional properties. These include obsolete equipment that has deteriorated in the structure and building.
About fixed assets
It is on them that the lion's share of all long-term assets falls. Fixed assets - this is part of the tangible material assets of the enterprise, which are used for a significant period of time - more than a year. Basically, they include non-production facilities. In the first case, those of them are implied that do not participate in the process of creating wealth, but only provide more comfortable conditions. These are objects of culture, health care, housing and communal services. Production funds are funds that repeatedly participate in the creation of material assets. As an example, you can cite funds of construction, industrial, economic, transport and other purposes. No matter what their specialization is, they are all subject to physical and mental wear and tear. In the first case, a gradual loss of functional qualities is implied. Moral depreciation is the lag of equipment operating time from technological progress. Thus, it turns out that their cost is constantly decreasing. And to compensate for this process, new investments in long-term assets are needed. Otherwise, at one moment it will not be possible to continue the activity.
Intangible assets
They are presented as property of long-term use. Such long-term assets are non-material assets. But despite this, they have value and can be profitable. As a rule, intangible property refers to capital assets. Their market value as a resource of the enterprise significantly depends on the rights of the owner. As a rule, the balance sheet estimate cannot exceed the original value. The aggregate of intangible assets is intellectual property and deferred expenses. They can be purchased or resold.
Tangible assets
Their feature is the presence of a physical form. Land is the only tangible asset that does not imply the existence of depreciation expense. Whereas buildings, equipment, construction will wear out. And, accordingly, they are subject to depreciation. What is she like? Depreciation is the revaluation and distribution of the cost of a depreciated asset over its useful life. At the same time, natural resources are exhausted. For them, wear is irrelevant.
Long-term financial assets
Investments include the following operations:
- Financing in the form of cash and bank deposits, the acquisition of securities.
- Investing in movable and immovable (equipment / buildings) property.
- Acquisition of the right to use an asset.
- Purchase of intellectual property.
Speaking about long-term financial assets, one cannot ignore their types:
- Investing in securities: stocks, bonds, bills, provided that the investment is carried out for more than a year.
- Direct investments aimed at the acquisition of land, equipment, repairs or construction.
- Speculative financial investments. By them are meant investments that are made exclusively for profit.
In addition, it is necessary to touch on the most popular areas of activity:
- Acquisition of securities.
- The implementation of strategic investments to obtain a controlling stake.
- Investment in the purchase of vehicles and equipment.
- Directing funds for the purchase of real estate or construction projects.
- Direct financial support for the production process.
Accounting for long-term assets
The balance sheet item depends on the type of acquisition (received free of charge, as a result of an exchange, purchased for money). For appraised value, it is advisable to involve an independent expert evaluation. In addition, the character that has borrowed or equity is important. Long-term assets, such as intangible property, financial investments, receivables and fixed assets, are placed in liabilities. Balance may include an additional breakdown of items. But it depends on the needs of the enterprise. It should be remembered that the balance should reflect the whole picture that has developed in the enterprise. Although the details depend on the types of assets and the nature of liquidity. Also, equity is allocated to individual items. If, as a result of the liability, the asset is more than the asset, then this indicates that the enterprise is not profitable. After all, he has to serve more obligations than it makes a profit.