Question

Explain types of business assets.

Answer 1

The types of business assets are structured below:

1. Fixed Assets: These are long-term assets purchased for permanent usage in the firm to assist in the production of goods and services, rather than for resale. They provide benefits over multiple financial years and are further classified as:
   • Tangible Fixed Assets: Assets have a physical existence, which means they can be seen and handled. They experience ongoing wear and tear, which is accounted for through depreciation.
   • Intangible Fixed Assets: Assets that have no physical form or substance but have considerable legal and economic worth to the company. Instead of depreciation, the loss of value over time is reported as amortization.
2. Current Assets: These are short-term resources that are either kept in cash or are projected to be converted to cash, sold, or consumed within a single fiscal year or throughout the business's usual operating cycle. They offer instant operational liquidity.
3. Fictitious Assets: These are not real assets because they do not exist physically or have any resale value in the real market. Instead, they represent significant, unamortized cash losses or enormous revenue expenditures incurred in the current period, with financial advantages spread over numerous years. They are gradually written off to the profit and loss account over the course of a few years.