Assets are an important part of any business or organization. Assets are resources that add value to the business, fund daily operations and are used to pay expenses that have been incurred by the organization. Assets are listed on the balance sheet of an organization’s financial statements, which can be used for decision making by owners, management, investors and creditors of an organization. There are two different classifications of assets recognized on the balance sheet: current and noncurrent, or long-term, assets. The key difference in how they are classified is when the asset is expected to be realized in cash or consumed.
Current assets are resources that are expected to be realized in cash, sold or used in an operating cycle or within
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The resources are long term in nature and provide benefits to the organization for many years. Common noncurrent assets are Property, Plant and Equipment, long-term investments and intangible assets, such as copyrights, goodwill and patents. Noncurrent assets are capitalized, which according to Investopedia, means that “the company allocates the cost of the asset over the number of years for which the asset will be in use, instead of allocating the entire cost to the accounting year in which the asset was purchased.” This means that the cost is depreciated over the useful life of the asset. The cost of a noncurrent asset is listed on the balance sheet at carrying cost, or the difference between the purchase price of the asset less depreciation.
Both current and noncurrent assets can be a tangible asset. Tangible assets are items that have a physical existence or property that you can touch, see or feel. Examples of tangible assets are land, machinery, inventory, buildings and equipment. Noncurrent assets can also be classified as an intangible asset. These are assets that do not have a physical existence and can’t be touched or seen. Examples of intangible assets are goodwill, patents, trademarks and
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Ratios are a tool that can be used to measure liquidity and there are three common ratios that accomplish this. Cash Ratios, Current Ratios and Quick Ratios can be used for determining the liquidity of an organization (Current Asset, 2014)
According to Accounting Tools (2014), the order of liquidity is the “presentation of assets in the balance sheet in the order of the amount of time it would take to convert them into cash.” This means that the balance sheet has a breakdown of current assets listed first, followed by a listing of the company’s noncurrent assets. The listing of both current assets and noncurrent assets would also be in order of liquidity.
In conclusion, the classification of assets is extremely important for an organization because the information may be used by a wide range of users, including owners, investors, creditors, auditors and management. Decisions may be made based on the data provided in the balance sheet, so it is important to make sure the information is accurate and precise as
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
B) assets are generally listed on the balance sheet at their historical cost, not their current value.
This company has a large amount of assets, they total out at about 124,213. They have more assets than actually cash on hand. This company has no short-term debt, the only debt they have is short-term. There is a section called other assets this, has increased by a lot. The fixed assets have increased by a lot in this company.
The fair value of identifiable net assets includes four accounts classified under unrecognized intangibles. In order to determine which unrecognized intangibles is included in goodwill, ASC 805.20.55 was consulted. The Customer List had a fair value of $10M and was not included in goodwill. ASC 805-20-55-4 states that customer lists are licensed and can be sold; hence meeting the first criterion of an identifiable asset and not included in goodwill. Assembled Workforce was among the unrecognized intangibles. According to ASC 805-20-55-6, assembled workforce is included goodwill because it does not meet neither of the identifiable asset criterions. Trademark is not included into goodwill due to the fact that it meets the first criteria of an identifiable asset (ASC 805-20-55-17). The Licensing Agreement is a contractual agreement, meeting the second criteria of the identifiable asset; therefore not incorporated into goodwill (ASC 805-20-55-31). Lastly, In-Process Research & Development is not subsumed into goodwill because technology processes can be sold or exchanged; meeting the first criteria of an identifiable asset (ASC
Liquidity ratios, also known as solvency ratios (Averkamp, n.d.), look at whether an organization’s current assets are able to cover their current liabilities,
B. General Mills Consolidated Balance Sheets: 7. A company has assets so that they have a location and equipment to operate/create a business. Assets are resources that are controlled by a business. Without assets, one cannot produce and/or run a company. The purpose of assets are to keep track of expenses, what a company owns, like equipment, inventory, cash etc., and creates value for the company.
By taking into account only the most liquid assets, ratio 1.0 in 2013 and 2012, which increased by a small margin 0.2 from 2011, indicates that company has strong liquidity position.
Liquidity described by Easton et al. (2018) “refers to cash availability: how much cash a company has, and how much it can raise on short notice” (p. 4). Therefore, liquidity ratio analysis is a financial health measure that investigates if a company’s current assets are enough to meet the company’s short-term debt obligations. Two common liquidity ratios are the current ratio and acid test ratio (quick ratio). Current Ratio.
Intangible assets (IAS38) such as contracts in progress should be measure in market value. Discounted present value should take into consideration the time value for money and the risk of inability to finish the project.
Intangible assets are assets that cannot be physically held, such as copyrights, brand names, trademarks, goodwill, and patents. There are two kinds of intangible assets, definite and indefinite. Definite assets have a useful life and would be amortized ever year to decrease the value, such as trademarks and patents. Indefinite do not have a definite life time and would last as long as the company stays in business. Definite assets need to be amortized based on their useful life by determining the pattern of use for the asset. For example, if a company uses an asset 40% the first year, 30% the next year, and 15% the next 2 years, then it would amortize the value following that pattern. If they do not know the pattern they would use the straight-line
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
From an accountant's perspective, goodwill appears in accounts of a company only when the company has purchased some intangible and valuable economic source. Intangibles such as patents and copyrights are examples of identifiable intangible assets. On the other hand, intangibles such as favorable government regulations, outstanding credit ratings, superior management and good labor relations are examples of unidentifiable intangible assets (Tweedie, 27). Goodwill comprises the complete set of unidentifiable intangible assets held by the reporting entity. Generally, goodwill has appeared to be an umbrella concept embracing many features of a company's activities that could lead to superior earning power, such as excellent management, an outstanding workforce, effective advertising and market penetration.
The main method used by businesses to classify assets is to split them into tangible assets, which have a separate existence from the business (examples of which would include buildings, land and machinery), and intangibles which do not. Some clear examples of intangibles include goodwill, patents, research and development expenditure and trademarks. Intangible assets are usually created within the organisation over a period of time, by the company itself, rather than acquired from an external source and are rarely sold off individually they can normally only be sold in conjunction with associated tangible assets.
Balance sheet-: Balance sheet is a statement at the book value of all of the assets and liabilities of a business or other organization present a particular date such as the end of the financial year. It is known as a balance sheet because it reflection accounting identity the components of the balance sheets. The balance sheet must follow the following formula:
There are many techniques used to manage cash including, the nature of asset growth, controlling assets, patterns of financing, the financing decision, a decision process and shifts in asset structure. For any company the growth of asset results in a growth in wealth if managed effectively. The typical firm usually forecast the rate of sales to ensure that the production of goods match sales so there is not an overflow if inventory. As a company expands and produces more items they will acquire permanent current assets. Permanent current assets can be described as a constant inventory of items because it is almost impossible to predict the market and the demands of the consumer.