Question

A first-year accounting learner is confused by a statement made in a recent online class discussion. The faculty member stated that the assets listed in the balance sheet of the IBM Corporation include computers that are classified as current assets as well as computers that are classified as noncurrent assets. In addition, the faculty member stated that investments in marketable securities of other corporations could be classified on the balance sheet as either current or noncurrent assets.

Explain the distinction between current and noncurrent assets pertaining to the IBM computers and the investments in marketable securities.

Answer 1

Current Assets:-   

• Current assets are items listed on a company's balance sheet that are expected to be converted into cash within one fiscal year.
• Since current assets are expected to be converted into cash within one year, they usually include cash, accounts receivable and inventory. Cash is considered a current asset because it can be readily converted within one year and can be used to pay short-term debt. Accounts receivable consist of the expected amount of cash to be collected within one fiscal year. Inventory is a current asset because it includes raw materials and finished goods that are readily available for sale.

Non Current Assets:

• Non-current assets are assets other than the current assets.
• These are assets which are expected to generate economic benefits over more than one year.
• Some examples of noncurrent assets are fixed assets, intangible assets and long-term investments. Fixed assets include property, plans and equipment that a company owns that are not expected to be converted into cash within one fiscal year.

IBM computers & Investments in marketable securities:

As discussed above, meaning of current and non current asset, if computers & Investments in marketable securities are held for a period of more than a year, then only they can be classified as non-current asset, otherwise they are current asset.

Hence, nature of asset doed not depends upon its name, while it depends upon the purpose and timing of its holding.