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The balance sheet of any firm consists of the following namely; long term assets and current assets. The long term assets are called as long term uses or long term applications. The following are the components of long term assets namely; land, building, machinery, intangible assets and other noncurrent assets. Fixed assets: The following namely; land, building and machinery are called as fixed assets. Since these assets are available with the firm for a longer period namely; till the existence of the firm, they are called as fixed assets. They can also be called as gross block. The amount mobilized through capital and available through reserves are utilized initially for acquiring the buildings required for establishing the factory and other administrative units. The machineries are either purchased using own funds or by availing finance from banks or financial institutions. On account of wear and tear, the buildings and machinery are subject to depreciation and gross block less depreciation is called as net block. While depreciation is applicable to buildings and machinery, land gets an appreciation each year. Intangible assets: The assets which are not physically available with the firm are called as intangible assets. The following intangible assets are available to any firm namely; miscellaneous expenditure, preliminary expenses, goodwill, patents, copyrights etc. The primary intangible asset is called as goodwill and goodwill arise when the purchase price of an acquired company exceeds its book value. Goodwill is an important item during the course of any surge in corporate mergers and acquisitions. It is on account of the facts, that during mergers or acquisitions, the price paid for the company often exceeds the value of its tangible assets. This is normally possible in the case of companies which have good reputation, favorable location or customer base which are considered to have good financial value even though such qualities do not find any place on the assets side of the balance sheet of the firm. Good will is normally amortized as long as forty years. Similar to goodwill, the items which are paid but not yet expensed appear on the income statement as prepaid expenses. They have little liquidation value for the lender. The following are some samples when it comes to prepaid expenses namely; insurance premiums paid at the start of the year and rent paid one or more months in advance. Non current assets: Many times, the firms may be having non current assets in the form of commercial paper and certificate of deposits etc., which are available with the firm for more than twelve months. Classof1.com offers Accounting Homework Help
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