Are deliveries current assets or fixed assets
Current assets: Assets that are not invested on a permanent basis
The current assets are usually referred to as the counterpart to the fixed assets, with which they form the total assets of a company. These are assets that do not remain in the company permanently and are usually used immediately - for example to manufacture sales products. Depending on the type of current assets, permanent use is not planned or not possible at all. In short: Current assets include assets that are not fixed assets.
Due to its temporary use, the amount of current assets fluctuates constantly. The acquisition and production costs play a role in the valuation of this asset.
If the remaining term of claims is more than one year, this must be listed separately in the balance sheet.
- Stocks: Here the law lists raw materials, auxiliary materials or operating materials. This also includes unfinished products or services as well as finished products and goods. Financial inventories are also mentioned with prepayments made.
- Receivables and other assets: These are trade accounts receivable, from affiliated companies or from companies that hold investments.
- Securities: These include shares in affiliated companies and other securities.
- Liquid funds: These funds are made up of cash in hand, Bundesbank balances as well as bank balances and checks.
Companies can thus increase their current assets by selling more goods and adding the outstanding receivables to this asset. A direct "investment" in the current assets is not possible, as is common with fixed assets, for example.
Important key figure for companies
If companies know how high their current assets are, they also know how much capital can be used in the short term. Since the current assets also consist of raw materials or auxiliary materials, companies can better plan and control production on the basis of this asset component.
Allocation of assets
Depending on the type of asset, a clear assignment to current or fixed assets is problematic. This applies in particular to loans and securities. They are listed in the Commercial Code for both financial assets and thus fixed assets as well as current assets.
Ultimately, the allocation of these assets depends on how they are used and how long the capital is tied up. If the securities serve the company permanently, they are assigned to the fixed assets. If they are to be counted as current assets, the securities or loans must be sold on the balance sheet date.
Once a company has made an assignment, it must adhere to it. Only in the event of a change in the intended use can the asset part be reallocated. A reallocation ultimately also has consequences for the valuation. Assets in fixed assets only have to be valued according to the moderated lower value principle. For current assets, however, the much stricter lowest value principle is applied.
Allocation according to US-GAAP
According to the general accounting regulations of the USA, the United States Generally Accepted Accounting Principles (US-GAAP for short), only those assets are counted as current assets within the scope of “Current Assets” that are sold or used within the normal business cycle. If the business cycles last less than a year, one year is used as the basis for calculation.
The International Financial Reporting Standards (IFRS), on the other hand, provide an option as to whether a distinction is made between fixed and current assets.
Short term and long term working capital
As a rule, we speak of short-term current assets if the term is less than a year. Long-term current assets are usually called assets that are tied up for a longer period of time, but are still counted as current assets. This can be, for example, raw materials or bank balances that a company stores as a reserve so that it can still produce in the event of a bottleneck.
Structure in the balance sheet
In the balance sheet, the current assets must be broken down on the assets side. The breakdown is based on the classification in paragraph 266 specified in the Commercial Act. In order to be able to draw up the balance sheet, the inventory must be recorded beforehand.
Current assets in the balance sheet analysis
When evaluating a company, the current assets are important in the context of the balance sheet analysis. It provides important key figures about the liquidity and the economic health of a company.
This key figure expresses the relationship between fixed and current assets. This shows how high a company's liquid and non-long-term funds are.
The calculation: asset intensity = fixed assets ÷ current assets
The assessment of asset intensity is different. For example, dealers or construction companies have a high proportion of current assets. In return, a transport or infrastructure company should have a higher proportion of fixed assets. A high asset intensity can mean that a company has little liquid funds at its disposal due to the long-term commitment of its assets. Depending on the industry, this can be a disadvantage.
This guideline value indicates the ratio of current assets to total assets. Basically, a high circulation intensity is an advantage, because it shows that a company has only little capital tied up and can invest flexibly.
The calculation: circulating intensity = circulating assets ÷ total assets
Circulation intensity and asset intensity relate primarily to the assets on the balance sheet. The following key figure also takes account of the liabilities on the balance sheet.
Working capital is also called net current assets and is a more precise key figure for company valuation. The number can be positive or negative.
The calculation: Working capital = current assets - short-term liabilities
Only individual components of the current assets can be taken into account for the calculation, for example only trade receivables and inventories. The corresponding positions on the liabilities side are then deducted from this.
If working capital is positive, it can mean that a company has long-term funding. Industrial companies usually have positive working capital. If they are negative, it can be a sign of a lack of substance.
For example, a negative net working capital can be a positive sign for a trading company because its high sales mean that many payments are still outstanding. However, negative working capital can also be an indication of a lack of or low liquidity.
Valuation and depreciation
In accounting, the depreciation of current assets means that their depreciation is recorded in the balance sheet. However, in contrast to fixed assets, there is no scheduled depreciation.
According to Paragraph 253, Paragraph 1 of the Commercial Code (HGB), current assets must be valued at their production and acquisition costs. In contrast to tax law, there is a depreciation or capitalization obligation. The so-called "lowest value principle" must be applied.
Tax law, on the other hand, gives companies the right to choose whether or not current assets are depreciated within the framework of partial depreciation. The prerequisite for this is that their value is expected to be permanently impaired. If the partial value is lower due to a non-permanent reduction in value, there is, however, a prohibition on capitalization for depreciation on current assets in the tax balance sheet.
Extraordinary depreciation on current assets
Unscheduled depreciation on current assets is possible due to the lower of cost or market principle prescribed by the Commercial Code. This happens, for example, when accounts receivable are very likely no longer to be settled. The same applies when companies have stocks of goods that can no longer be sold, for example seasonal goods.
Difference to fixed assets
In contrast to fixed assets, current assets differ in that they only remain in the company temporarily. The fixed assets are invested for the long term. Accordingly, long-term loans are taken out to increase fixed assets, for example, while liquid funds are used for current assets. Another difference is that fixed assets can be depreciated. Only on the balance sheet date is it possible to apply extraordinary depreciation to current assets. This is the case, for example, if claims will no longer be settled in the foreseeable future.
According to Paragraph 247, Paragraph 1 of the Commercial Code (HGB), the current assets are to be listed separately in the balance sheet and broken down accordingly. In contrast to paragraph 2 in the same paragraph, the current assets, in contrast to the fixed assets, do not serve business operations on a permanent basis.
In Paragraph 266, Paragraph 2 B of the HGB, the components of the current assets are listed according to which the balance sheet on the assets side must be structured at the end of a financial year.
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