Asset Types: Meaning, Different Types, Capital Assets and Banking Assets (2024)

An asset is a resource that any business or individual owns or controls for financial benefits. It is anything that can be sold for money. Assets have economic value that can be realised by either converting them into cash or generating income from them in some other way.

An asset can be a short-term or a long-term investment. When an individual owns an asset, it is known as a personal asset, and when an organisation owns an asset, it becomes the company’s asset.

Companies mention their assets on their balance sheet for each financial year. Assets are something that can be bought and sold to increase a firm's value and benefit a firm's operational capability. Keep reading to learn about differentasset types.

What are the Major Types of Assets?

You can classify assets in three different ways based on convertibility, physical existence and usage. On the basis of these classifications, variousasset types have been categorised below:

• Convertibility

1. Current assets: Current assets are liquid short-term assets that can be easily converted into cash or its equivalent within a fiscal year. Other current assets include cash, cash equivalent, account receivables, short-term deposits, office supplies, marketable securities and inventories.
2. Noncurrent or fixed assets: These are long-term assets that one keeps using for more than a year. Examples of this asset include property, machinery, equipment, long-term investments, patents, trademarks, goodwill, copyright, etc.

• Physical Existence

1. Tangible asset: These assets exist physically; therefore, they are measurable. Examples of this asset include cash, property, raw material, equipment, office supplies, tools etc.
2. Intangible assets: These are assets that do not have a physical form but have monetary value and contribute much to the general operation. As they are intangible, it sometimes becomes tough to assign any monetary value to them. Examples of intangible assets are brands, patents, copyright, trademark, licence and permits, stocks, royalties, goodwill etc.

• Usage

1. Operating assets: These assets are required for the primary operations of any business, right from production to sale. Examples of these assets include cash, inventory, machinery, building, patent, copyright, plant etc.
2. Non-Operating assets: These assets are used in day-to-day operations but are accumulated for future use. Though these have negligible participation; however, they keep a business stable. Examples of this asset type include land you presently do not use, marketable securities, short-term investments, interest income from fixed deposits etc.

Apart from these, there are two other types of assets - one is a growth asset, and another one is a defensive asset. A growth asset is an investment asset that appreciates in value over time and provides income to its owners. Examples of growth assets are stocks and property.

On the other hand, defensive assets are also investment assets, but they do not generate income by appreciation of value. They provide interest on the principal invested in them. Examples of thisasset typeinclude savings accounts and certificates of deposit.

Types of Capital Assets

Capital assets are any fixed assets anyone can own for personal or investment purposes. They can either be tangible or intangible. All stocks, properties, machinery, bonds that any business or individual owns, etc., are capital assets. Anything that generates value is a capital asset.

There are two types of capital assets. One is a short-term capital asset, and another is a long-term capital asset:

• Short-term Capital Assets

Any asset with a holding period of 36 months or less from the date of transfer to its owner is a short-term capital asset.This criterion has been reduced from 36 months to 24 months from FY 2017-18 for immovable properties like land, house property, machinery or building and unlisted shares.

Additionally, assets with a holding period of less than 12 months from the date of transfer (which should be 10^th July 2014) also fall under short-term capital assets. Examples of assets with a holding period of less than 12 months include:

1. Equity or preference shares of any company listed under any recognised stock exchange in India.
2. Any other securities listed in India
3. Units of UTI
4. Zero-Coupon Bonds
5. Units of Equity-oriented mutual funds

• Long-term Capital Assets

Capital assets with a holding period of more than 36 months from the date of transfer are long-term capital assets. Examples include mutual funds units that are redeemed after a period of 36 months or more.

Types of Assets in Banking

In the banking sector, there are generally two asset types - one is a performing asset, and another one is a non-performing asset. Let us take a better look at these assets:

• Performing Assets

These are generally loans against which financial institutions receive interest income and the principal on the repayment date. Performing assets can be divided into two categories:

1. Special Mention Accounts (SMA): In this case, the bank recognises a party that has taken a loan and is likely to default in the near future. In order to avoid future losses, banks treat such open loan accounts as SMAs.
2. Standard Assets: These are loans which do not pose any threat of default. There is a high possibility that the bank will receive its regular interest income from the borrower.

• Non-performing Assets

If a banking institution does not receive any payment from the borrower against the loan for a period of 180 days, it is referred to as a non-performing asset. They can be further divided into three types:

1. Sub-Standard Assets: When a bank does not receive any payment for a period of less than 12 months against a loan, it is referred to as a sub-standard asset.
2. Doubtful Assets: If the borrower doesn’t repay interest income for a period of more than 12 months and there are fewer chances of recovery, it is referred to as a doubtful asset.
3. Loss Assets: If recovery is impossible, banks classify such assets as loss assets.

Final Words

After going through the entire article, now you might get a clear understanding of what an asset is and how important it is to individuals and businesses. Classifying assets into different categories is extremely important so that we get a better understanding of what eachasset type stands for and the type of return we can expect from our investment.