Question

Distinguish between fixed assets and current assets.

Answer 1

The differences between fixed assets and current assets are

$\begin{array}{ccc}\text{Basis}& \text{Fixed Assets}& \text{Current Assets}\\ \text{Purpose of Holding}& \text{These assets are used to earn profits}& \text{These assets are consumed during the}\\ & \text{and operate the business.}& \text{normal operating cycle of the business or}\\ & & \text{are realised in cash.}\\ \text{Valuation}& \text{These assets we valued at cost less depreciation.}& \text{Current assets are valued at cost or market}\\ & & \text{price whichever is lower.}\\ \text{Sources of Finance}& \text{Fixed assets are financed out of the}& \text{Current assets are mainly acquired out of}\\ & \text{long-term funds.}& \text{the short-term funds.}\\ \text{Subject to Change}& \text{Fixed assets are usually not subject to change.}& \text{Current assets are usually subject to change.}\\ \text{Nature of Profit on Sale}& \text{Profit on sale of these assets is of}& \text{Profit on sale of current assets is of revenue}\\ & \text{capital nature i.e., capital profit.}& \text{nature i.e., revenue profit.}\end{array}$