Fixed Assets and Current Assets - Explained in Hindi - YouTube

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Namaskar, my name is Mukul and you are welcome to Asset Yogi.

Where we don't lock the finance knowledge but unlock it.

With this video, we are going to start a series of financial analyses

Many of you have requested that I should make videos on the investment in the stock market.

And with that, we should also discuss business finance.

So definitely, in this series, we will discuss financial analysis.

Now see why financial analysis is so important?

Suppose you invest in the stock market.

So to analyse the strength of any business, you should know to do its financial analysis.

Or if you have your own business then also you should know financial analysis.

Or if you work anywhere, so you can find financial strength of your company or of any other company.

So in financial analysis first, we will understand the basics of finance.

After that, we will see financial ratios that in which way you can find the strength of business or any company.

So in this video, we will be discussing fixed assets and current assets.

Many times you see the financial statement of any business so in it you will be able to see fixed assets and current assets.

People, normal laymen don't understand what are the differences between both?

So in this video, we sill see all the differences.

Will see the technical definitions.

We will see the examples, what are examples of fixed assets and current assets.

And then we will also see how financing can be done of fixed assets and the current assets.

So you must see this video from beginning to last so that you do not miss any important points.

So let's go straight towards the blackboard.

So let's understand that what are the differences between the fixed assets and the current assets.

If we talk about accounting terms.

Fixed assets are such tangible property or equipment, which you use in your business.

And it gives you by producing income.

Now because it is giving you by producing long term income.

That's why we call it a long term asset also.

Or we call the fixed assets, capital assets also.

Now if we talk about current assets so they don't give you by producing income in long term.

But in short term, they can be converted into cash.

So any asset, which converts into cash in short term is called your current asset.

Now if we talk about liquidity, now because fixed assets are long term assets,

so they are not liquid, you can't convert them into cash.

So any such asset, which you can't sell or can't convert into cash within the 1 year.

It is considered a fixed asset.

This is a technical difference here, 1 year is assumed for convenience, for accounting.

The liquidity of current assets is more because you can convert them to cash in the short term.

And the short term means to be assumed 1 year if we talk about accounting terms.

So because it is a technical accounting term that's why here 1 year in form of convenience

is considered as a term.

So less than 1 year is called the short term.

And more than 1 year is called the long term.

So any asset that you can't convert into cash in less than 1 year is called a fixed asset.

And whom you can convert in 1 year is called a current asset.

So if we talk about the examples of fixed assets, so any land or building, your office's space.

Or you have any factory, warehouse.

It's your fixed asset, you had invested in it.

Or you have any plant and machinery, suppose you have a work of printing then your printing machine

is a fixed asset.

If you have construction's work then your construction equipment is fixed assets.

If you use a computer or software in your business so they are your fixed assets.

Any type of vehicle you use in business whether it's any construction equipment or trucks

or any type of vehicle, they are also your fixed assets.

And then the furniture and fixtures you use in your office or for your office or company purposes.

They are your fixed assets.

See this, all these assets you are using in the long term,

which either gives you by directly producing the income.

Or you are using them as office furniture.

For example, it is not giving income by producing them directly, but you are using it in a company.

And the company is using it indirectly to produce income.

So your fixed assets can't be converted into cash immediately.

Now if we talk about the examples of current assets so cash and cash equivalent come in this.

Cash and cash equivalent means the cash which is in your hand.

Right, that is cash.

Cash equivalents mean let's say you have some bank deposits or FD's

or any other types of deposits you have.

So they are included.

Or maybe you have some investments, let's say you have invested in mutual funds,

or some insurance policies are included in your current assets.

Then you have account receivables which, suppose if a customer buys things from you on credit.

So you don,t get that money immediately, it goes into your account receivables.

That can also not be converted to cash immediately but maybe after 1-2 months can convert to cash.

Then that also comes in current assets.

We call it customer credit also.

Because the customer is not paying immediately to you that's why we call it customer credit or also calls debtors.

And what are other examples? Whatever your inventory is whether it is in the form of raw material,

or in the form of work in progress, work in progress means if any of your process is in form of manufacturing,

so during that time whatever your stock is called work in progress.

Then your inventory can be in the form of finished goods, your good is not sold immediately.

So you have to keep it in the warehouse, so that money also gets blocked.

So some of your money may be blocked in the form of inventory, and you also not get cash immediately.

But your working capital cycles, which we also call operating cycle.

Because you get that money after some time so that also comes in current assets.

Then if you have some pre-paid expenses like you have taken the insurance and the paid the premium of the whole year.

So it doesn't convert to cash immediately but your cash is saved.

So the cash saved, you can use that.

So you can take that also in current assets.

Similarly, if you have paid to any contractor in advance then that also comes in current assets.

Then if you or your company has given short terms loans or advance to someone, that also comes in current assets.

Because maybe he can return within 1 year.

And yes, if that money doesn't get returned in 1 year,

So it will not be included in current assets because it is more than 1 year.

So in this way, you can find out the differences between the fixed and current assets.

Now let's see what are the other differences.

Now let's talk about valuation.

When you will do accounting then how will do the valuation of fixed assets?

At whatever price you have bought that asset, we take purchase price here not market value.

So here book value is been taken that is purchase price - depreciation.

So any fixed assets depreciate within a period of time.

There are no assets that do not depreciate except land, your building also gets depreciates.

So you have to apply a depreciation factor and you have to depreciate something every year.

I will definitely make further a detailed video on depreciation.

Now if we talk about current assets, how do you value them in accounting terms.

So either its cost is taken or its market value is taken, whichever is the lowest.

Let's now talk about financing.

If you want to buy the fixed assets then from where you will arrange the funds.

So the money for your fixed assets mainly comes from the long term.

What is the meaning of long term funds? Either it can be in the form of equity.

Now in the equity funding either promoters or the owners out money from their side.

Or can bring investors.

If you take money from investors so they take back the shares in the company.

They will not charge you interest but ask for the partnership in shareholdings.

So either you have the option of equity to create the fixed assets.

The second option for you is debt.

That is you can take a loan, there are different types of loans.

For example term loans, loans against property, loans against securities if you have any FD's.

You can get loans against FD's, mutual funds and any LIC policy.

Or there is project financing if you are putting very big project.

Putting a factory or a big project.

So you get project financing for a long time.

To buy vehicles, vehicle loans can be arranged.

You can get a separate loan for equipment or any plant and machinery.

So I have made a detailed video on business loans that is Types of Business loans, you can check my video.

If you want to know in detail what are the options for long term financing?

Now let's talk about working capital financing.

To finance the current assets you will need working capital financing.

Working capital financing is of many types, now of them is supplier credit.

Supplier credit means you can say to the supplier that my customer gives money after a long time

let's say after 1-2 months, so I will also give you money after 1-2 months.

So many times supplier agrees with you if you are his long term customer.

So from whoever supplier you buy raw material, you can delay its payment.

So indirectly supplier did your financing.

Then we get advance from customers, there are many businesses where you can take advance from the customers.

For example, the construction industry or you do work of interior in your house and also if you do paintwork too,

The painter will immediately ask for an advance to buy the material.

These types of business are there, where you can collect advance.

So the customers finance you for the working capital.

Then you get cash credit and overdraft facilities from the banks if you have any manufacturing unit or have a retail business,

your working capital cycle let's say 2-3 months.

To manage them you get cash credit and overdraft facilitates from the banks.

Other than that, you have also options of bill discounting and bill purchase.

Bill discounting means if your account receivables, I write it here also,

against account receivables you get this bill discounting.

If you have some account receivables which have to come from nice customers,

and if the bank can rely on your company and your customers then the bank can discount,

deduct some money of interest and pay you immediately.

And now I have made a detailed video on bill discounting too,

if you want to see then you can watch my videos to understand in detail.

Similarly, you can get the facility of letter of credit and bank guarantee through the bank.

So there are too many options for working capital financing, I had made a detailed video on this,

So you can watch my video, you will know all these financing options in it.

The financing of current assets is working capital financing, it is short term financing for less than 1 year.

So it was about financing.

Now if you sell fixed assets, then how is its accounting is done?

Its income or loss is taken in the form of capital gains.

So suppose if you sold in cheap finally.

Suppose if you bought in 10 lacs and you sold it in 5 lacs let's say after 2-3 years.

So you can book loss and it will be in the loss is booked in the form of capital gains, it is called a capital loss.

Then if current assets sell, you will have income from sales.

because suppose some account receivables were to come, so your sales come and you will account it in income form sales.

Or in other income, suppose if you encash your investment, so it comes in other income.

So this is a little bit of difference.

If any assets are sold so they will come in the form of capital gains.

Ans if you sold any current assets then it will either be in the form of sales or in the form of other income.

So these are some major differences between fixed and current assets.

I hope that you have understood all differences.

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