Non-Current Assets

What are Non-Current Assets?

Non-current assets are long-term investments that a company does not expect to convert to cash or consume within one year. They are held for continued use in business operations.

Key Components of Non-Current Assets

1. Property, Plant, and Equipment (PP&E): These are tangible assets used in operations.

   • Components: Land, buildings, plant and machinery, equipment (including research equipment), furniture and fixtures, vehicles, office equipment, and computer hardware.

   • Intangible Assets: These are non-physical assets that provide future economic benefits. Examples include trademarks, software, goodwill, and brand value. They are treated similarly to tangible assets, with accumulated amortization instead of depreciation.

2. Right-of-Use Assets: These represent a lessee's right to use an asset under a lease agreement.

3. Capital Work in Progress (CWIP): This represents the cost of assets under construction. Once the construction is complete, the asset is transferred to PP&E. It's important to exclude CWIP when analyzing business performance, as these assets are not yet generating revenue.

4. Goodwill and Other Intangible Assets (excluding those already mentioned): This includes any remaining intangible assets not specifically categorized.

5. Investments in Subsidiaries and Associated Companies: These are long-term investments in other companies.

6. Financial Assets (Non-Current): These are long-term investments in financial instruments such as mutual funds, equity, and bonds.

7. Current Tax Assets: These are advance tax payments. They are similar to prepaid expenses and will be adjusted once the final tax assessment is completed.

8. Other Non-Current Assets: This is a catch-all category for miscellaneous non-current assets that don't fit into other categories.

Current Assets

What are Current Assets?

Current assets are resources that a company expects to convert to cash, sell, or consume within one year or one operating cycle (whichever is longer). They are essential for day-to-day operations and represent the company's working capital.

Key Components of Current Assets

1. Inventory: This represents goods held for sale or used in the production process. It comprises:

   • Raw Materials: Materials used in production.
   • Work-in-Progress (WIP): Partially completed goods.
   • Finished Goods: Completed goods ready for sale.

   The flow of inventory follows the operating cycle (or working capital cycle):

   Cash → Raw Materials → WIP → Finished Goods → Receivables → Cash

2. Financial Assets (Current): This category includes assets of a financial nature expected to be realized within one year.

   • Trade Receivables (Accounts Receivable): Amounts due from customers for goods or services sold on credit to be recieved within credit period.
     • Credit Period: The time allowed for customers to pay (e.g., 15-180 days).
     • Provision for Doubtful Debts (Allowance for Bad Debts): An estimate of receivables that may not be collected. This is deducted from gross receivables to arrive at net receivables.
     • Analysis of Receivables: The percentage of doubtful debts relative to total receivables is an important indicator of credit risk. An increasing percentage may suggest a need to tighten credit policies.
     • Example: If 3% of total receivables are deemed doubtful in the current year compared to 2% in the previous year, it signals a potential issue.

3. Investments (Current): These are short-term investments that mature within one year. This contrasts with non-current investments, which have longer maturities. Details of investments are usually provided in a separate schedule.

4. Cash and Cash Equivalents and Balances with Banks:

   • Cash: Physical currency.
   • Cash Equivalents: Short-term, highly liquid investments readily convertible to cash (e.g., unused stamps, stamped paper).
   • Bank Balances: Funds held in current accounts, savings accounts, and term deposits (fixed deposits).
   • Unpaid Dividends: Dividends declared but not yet paid to shareholders (due to incorrect bank details, etc.). These are held in a separate account and eventually transferred to the Investor Protection Fund of the Securities and Exchange Board of India (SEBI) after a specified period. SEBI is the regulatory body for the Indian capital market.

5. Loans and Advances (Current): Amounts due from others (excluding trade receivables), expected to be collected within one year.

6. Other Financial Assets (Current): A catch-all category for other current financial assets not classified elsewhere.

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