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Difference Between Fixed Assets and Current Assets

Updated on March 30th, 2019 in Finance & Accounts

Liquidity of an asset forms the basic difference between a fixed assets and current assets, i.e. if an asset can be liquefied into cash within the operating cycle are known as a current asset. On the contrary, any asset which is not converted into cash for more than the operating cycle falls under fixed assets category.

Difference Between Fixed Assets and Current Assets

The asset of a business can be classified into two parts Non-current/Fixed Assets and Current Assets

Let us see the difference between fixed assets and current assets to have a better understanding:

Basis of Comparison

Fixed Assets

Current Assets

Liquidity

Fixed assets are the long term assets which will not be liquefied in an accounting year.

Current assets are those assets which will be liquefied in an operating cycle of a business

Convertibility

Cannot be easily converted into cash

Can be easily converted into cash

Holding period

More than one accounting year

Less than one operating cycle

Valuation

Asset value - depreciation

The market/book value of the asset or cost whichever is lower

Revaluation reserve

Asset value is appreciated

Appreciation in the value of land

Not created

Key Differences Between Fixed Assets and Current Assets

The difference between the fixed assets and current assets can be clearly compared on the following grounds:

The fixed assets are the assets that are held by a business for more than an accounting year to generate income. On the contrary current assets are the assets that are held by the business not exceeding one operating cycle.

Conversion of fixed asset into cash takes a considerable amount of time and effort. On the other hand, a current asset can be easily converted into cash.

The fixed assets are recorded on the net asset value that is depreciation subtracted from the asset value. Whereas, the current asset is recorded at the cost or market value (whichever is lower).

In a case of fixed assets revaluation reserve is formed when there is an appreciation in the asset value. As against this, in the case of a current asset no such reserve is created.

Conclusion

To sum it up the fixed asset and current asset can be compared on the basis of their liquidity and holding period.

Suppose, there is a company that manufactures sewing machine then the sewing machine manufactured would be stock for them & will fall under the current asset category. On the contrary, a boutique sewing machine is a capital asset and hence comes under the category of fixed assets.

Disclaimer:

“The information and/or documents contained herein do not constitute any personal advice. Seek professional advice before taking any decision”