Question

A first-year accounting student is confused by a statement made in a recent class. The instructor stated that assets listened in the balance sheet of IBM Corporation include computers that are classified as current assets as well as computers that classified as long-term (noncurrent) assets. In addition, the instructor stated that investments in equity securities of other corporations could be classified in the balance sheet as either current or long-term assets. Explain to the student the distinction between current and long-term assets pertaining to IBM computers and the investments in equity securities.

Answer 1

CURRENT ASSETS

LONG TERM ASSETS

a)Current assets are the assets that can be immediately convted into cash. b)currents asstes are used with in one accounting year. c)These are the assets with high liquidity. d)these are used to fund for day to day business activities. e)It benifits company in the short term f)These are shown in blance sheet on asste side. g)EX:Cash,inventory, short term securities h)They can be relazised at any point of time.

a)Long term assets are the assets that can not be easily converten into immediate cash or cash equalents. b)Long term asstes are used in the organisation for more than a year c)These are the assets with low liquidity. d)Long term asstes are used in the organisation for the production of goods e)It benifits company in the long term. f)These are shown in blance sheet on asste side. g)EX:Equipment,land,buliding etc., h)They can be relazised only at the point of windding up of company.

COMPUTERS AS CURRENT ASSETS:

Computers that can be classified as current assets if they are the inventory of the company IBM. IBM is the company that manufacturers the computer as their product so they are the final products of the company .Hence ,they are considered as current assets.

COMPUTERS AS LONGTERM ASSTES:

IBM company uses the computers for recording their sales, entering transation,for accounting ,for preparing softwares ect., Hence if they use the same computer for their office activities then they are considerd as long term assets.

SECURITIES AS CURRENT ASSETS:

If IBM purchases securities of some other companies with the intenstion to sell them off with in span of a year then they are considered as current assets.

SECURITIES AS CURRENT ASSETS:

If IBM purchases securities of some other companies with the intenstion to retain them with themself for long term investment purpose  then they are considered as long term assets.

please hit the like button if you like it.Thank you.