Definition of Total Assets
Total assets (T.A) can be defined as sum total of the money value of all monetary and non-monetary economic resources owned, managed, and controlled by an organization which is either having current economic value or is capable of generating future economic benefits for the organization either within a short period of time or in long run.
Assets, in simple terms, are defined as anything and everything that a business owns, that has value and that can be converted to cash and is categorized as current assets or non-current assets. Total asset is the sum of all current and non-current assets which is equal to the sum of total liabilities and stockholder’s equity on the other side of the balance sheet. T.A are disclosed in the balance sheet as per the applicable GAAP, laws of the land. Example: these may be listed on a balance sheet in the order of their liquidity. The valuation of each asset is recorded as the asset’s purchase value. When all the assets are classified and listed in the appropriate order on the balance sheet, the sum of their valuation is combined together to derive the T.A value.
Formula of Total Asset
Depending on the availability of information, T.A can be derived as follows: –
Total Assets = Liability + Owners Equity
Total Assets = Liabilities + Owners Equity + Net Profit – Drawings
Total Assets = Non-Current Assets + CURRENT ASSETS
- Current Assets: Current assets are Those assets that can be converted into cash or cash and cash equivalents within one year of acquisition. Example: cash, cash, and cash equivalent, accounts receivable, marketable securities, inventories, prepaid expenses.
- Non-Current Assets: Non-current assets are assets that generate economic benefits from a period greater than one year of the acquisition or from the balance sheet date. Example: fixed assets, plant, and machinery, furniture, land and building, intangible assets, goodwill, etc.
How to Calculate Total Assets?
To calculate T.A following steps must be followed –
- Identify Your Assets: The first step to calculating T.A is the identification of all assets. One must have knowledge about whether the item will generate any economic benefits to the organization, if yes then list down such items. Identification and valuation of intangible assets may be a problem. Intangible assets will also form part of T.A.
- List Your Asset: The foremost step to be taken is of listing the values of any current asset like cash, inventory, money owed to you, and fixed assets like buildings and machines. Also, the value of long term investments such as stocks and bonds should be considered.
- Valuation: Next step is to identify the value of the asset. This may be either cost of the asset or the present value of sum total of future economic benefits that will be generated by any asset. Depending upon the use certain other valuations like net realizable value, historical cost, net replacement value, or future economic value may be applied for valuation.
- Add up Your Assets: Add up all the assets to find the final amount.
- Check the Basic Accounting Formula: One can cross verify the sum total of assets with the help of the accounting equation which says T.A will always be equal to sum total of total liabilities + owner’s equity. Where equity is the owner’s fund of a company such as capital, shareholders fund, and liability is the debts of the company which needs to be paid off such as loans, operation expenses, salaries, etc.
Examples of Total Assets
Following are the examples given below:
From the following details ascertain T.A value: –
|Accumulated Depreciation on Machine||30,00,000|
|Accumulated Depreciation on Furniture||10,00,000|
T.A is calculated as
Total Assets = Land + (Machinery – Accumulate Depreciation on Machinery) +inventory + (furniture – Accumulated Depreciation on Furniture) + Cash +bank
- Total Assets = 50,00,000 + (80,00,000 – 30,00,000) + 60,00,000 + (40,00,000 – 10,00,000) + 10,00,000 + 40,00,000
- Total Assets = 50,00,000 + 50,00,000 + 60,00,000 + 30,00,000 + 10,00,000 + 40,00,000
- Total Assets =$2,40,00,000
Hence Total Assets of Amazon Inc. is $2,40,00,000.
Identify and determine T.A value from the following items
|Warranty claim provision||20,000|
|Warranty claim provision||No||It’s a contingent liability that may be paid in future|
|Debentures issued||No||It’s a long-term liability disclosed on liability side|
Total Assets is calculated as
Therefore, Total Assets = Land + Machinery + Cash
- Total Assets = 2,00,000+1,00,000+50,000
- Total Assets = 3,50,000
The balance sheet is used to disclose the T.A of a company and how these assets are financed that is whether through debt or equity. It is a statement of net worth and the financial position of a company. To record an asset on the balance sheet it must be classified either as a current asset or a long-term asset. According to the applicability of accounting standards, the assets may or may not be recorded at their current market value or cost. According to IFRS, the assets are stated at their current market values. The acquirer of the asset will judge the asset value on the balance sheet which usually corresponds to the actual value of an asset or is there any difference in value.
Sample Balance Sheet (Asset side)
|Current FY Fig($)||
Previous FY Fig($)
|Land, Buildings, furniture, etc.|
|Deferred Tax Assets|
|Long-Term Loans & Advances|
|Inventories, Accounts Receivable, etc|
(Note: -Above B/s does not contain exactly all items which need to be disclosed. Its just a sample for understanding)
Total Assets vs Current Assets
T.A are sum total of all the assets current and non-current assets and together form the asset side of the balance sheet while current assets are the assets that are part of total assets and capable of converting, utilizing, and realizing into cash or cash equivalent within one year of acquisition or balance sheet date. Current assets are the most liquid assets and are easily realizable at any point in time and include items like cash and cash equivalent, inventory, accounts receivable, etc. Whereas T.A include all current assets along with other no-current assets like land and building, plant and machinery, equipment, vehicles, goodwill, etc.
Some of the advantages are given below:
- Total assets produce positive economic value for an economic entity whether tangible or intangible.
- Total assets represent the value of ownership that is held by a company and can be converted into cash whenever required.
- It shows the capacity of a profit-oriented enterprise that helps in contributing directly or indirectly to future net cash flows and in providing services.
- One can measure the performance of profit generation by comparing it with benchmark standards of accounting ratios like total asset margin ratio, net profit to T.A ratio, Total assets turnover ratio, etc.
Some of the limitations are given below:
- Identification and valuation of intangible assets is a challenge and might affect T.A valuation if these are not evaluated properly.
- The balance sheet discloses assets at a historical cost which does not reveal the actual realizable value in certain cases.
- Assets like employees who do not possess money value cannot form part of the total asset but play a great role in running a business.
Asset plays a crucial role in studying the financial world. An entity should try to utilize its assets in the best possible manner. A firm’s health is decided on the basis of various parameters in which T.A play a crucial part. It helps in predicting the profit a firm is generating and determining its efficiency level and making action plans accordingly for meeting our targets.
This is a guide to Total Assets. Here we also discuss the definition and how to calculate total assets? along with advantages and limitations. You may also have a look at the following articles to learn more –