Difference Between Current and Non-Current Assets
Assets are resources for a business; assets are of two types namely current assets and non-current assets. Current assets are those assets which are equivalent to cash or will get converted into cash within a time frame one year. Non-current assets are those assets which will not get converted into cash within one year and are noncurrent in nature.
Current assets consist of cash and cash equivalents, which is generally the first line item on the asset side of the balance sheet when a balance sheet is prepared based on liquidity. Cash equivalents are generally commercial papers that a company invest which is as liquid as cash. Other current assets are accounts receivables which the amount of money the company owes from the debtors to whom they have sold their goods on credit.
Another very important current asset is inventories; any business needs to maintain a certain level of inventory for running the business both high and low levels of inventory are not desirable by a company. Other current assets include deferred income taxes and prepaid revenue.
PPE forms the major part of noncurrent assets for a business. Plant machinery and equipment are reported on the balance sheet at book value which generally the acquisition cost for that fixed asset. Companies also depreciate the plants and machinery either through the straight-line method or Double Declining method.
Net PP&E is reported by the company which gross PP&E adjusted for accumulated depreciation. Other noncurrent assets comprise long term investments, long term deferred tax, accumulated depreciation and amortization. Goodwill is an example of an intangible asset. Intangible assets are adjusted for amortization, not depreciation.
Current Assets vs Non-Current Assets Infographics
Key Differences
- Current assets are those assets that are equivalent to cash or will get converted into cash within a time frame one year. Non-current assets or long term assets are those assets which will not get converted into cash within one year and are non-current in nature.
- The list of current assets includes cash and cash equivalents, short term investments, accounts receivables, inventories, and prepaid revenue. The list of non-current assets includes long term investments, plant property and equipment, goodwill, accumulated depreciation and amortization and long term deferred taxes.
- Current assets when sold are considered as trading profits and are subject to corporate tax. On the other hand, whenever long term assets are sold, that is considered as capital gain and capital gain tax is applicable in that case.
- Current assets are not subject to revaluation in generally, only in some cases inventories may be subject to revaluation. Long term assets like PP&E needs to be revalued by the company. Whenever the market value of a tangible asset decreases compared to the book value of that asset. The company needs to revalue that assets book value and the difference in reported as a loss in the income statement for that period.
Comparative Table
| Basis | Current assets | Non-current assets | ||
| Definition | Current assets are those assets that are equivalent to cash or will get converted into cash within a time frame one year. | Noncurrent assets are those assets which will not get converted into cash within one year and are noncurrent in nature. | ||
| Items | Currents assets include line items like cash and cash equivalents, short term investments, accounts receivables, inventories and prepaid revenue | Noncurrent assets include long term investments, plant property and equipment, goodwill, accumulated depreciation and amortization, and long term deferred taxes assets | ||
| Nature | Current assets are the short term resources of a company | These assets are the long term resources in order to run the business | ||
| Valuation | Generally, current assets are valued in the balance sheet at market prices | Long term assets are valued in the balance at acquisition cost less accumulated depreciation. For intangible assets, they are valued at cost less depreciation | ||
| Goodwill | Not part of current assets | Noncurrent assets can be further subdivided into tangible assets and intangible assets. A most popular intangible asset is goodwill which is created through acquisition. | ||
| Tax implications | Selling of the current assets results in the profit from trading activities. | Selling in the long term assets result in the capital gains and capital gain tax is applicable in such a case. | ||
| Revaluation | Current assets are not subject to revaluation in generally, only in some cases inventories may be subject to revaluation | Revaluation of PP&E is very common in case of the long term assets. Whenever the market value of a tangible asset decreases compared to the book value of that asset. The company needs to revalue that assets book value and the difference in reported a loss in the income statement for that period |
Conclusion
Assets are the resources required by a company in order to run and grow its business. current assets and noncurrent assets combined to form the total assets required by a company. Long term assets are required for the long term purposes of business like land equipment and machinery which are needed for the long term of business.
On the other hand, current assets are the resources that are required for running the day to day operations of a business. The current assets are generally reported in the balance sheet at the current or market price. On the other hand, noncurrent assets are reported in the balance sheet at cost price on acquisition adjusted for depreciation/amortization which is subjected to revaluation whenever the market price decreases compared to the book price.
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