Question

Classification of liabilities is based on the same principles as the classification of assets.’ Do you agree with this? Why or why not?

Answer 1

Yes.

Mainly the assets and liabilities are classified as Current and Non current . This is followed for both the assets and liabilities.

The assets which are to be converted into liquidity within short span of time which is say 12 months or less will be classified as Current Assets while sane is the case with the liabilities, liabilities which are to be paid in short span that us say 12 months or less is classified as Current Liability.

For example: Accounts receivables & Inventory in case of Current assets and Accounts payable & outstanding expenses in case of Current liabilities.

On the other hand the assets which are acquired for long term purpose say for more than 12 months are classified as Non current Assets while in case of liabilities the liabilities which is to be repaid after 12 months from its occurence is classified as Non current liabilities.

For example : Fixed Assets in case of Non current Assets and Debentures or long term loans & borrowings in case of Non current liabilities.

Therefore, from the above explanation it can be concluded that assets and liabilities are classified on the basis of same principles.