The current assets of a company are convertible in an operating cycle, mostly a year. They are of the essence as they enable to meet daily obligations (Horngree et al., 2005). Five categories of current assets include debtors, cash and cash equivalents, stock, prepaid expenses as well as short-term investments. They are shown in the balance sheet and are normally listed in liquidity order. They are therefore arranged on how quickly they are convertible to cash. If the current assets are less, the company may result in short-term lending to ease the situation (Horngree et al., 2005).
On the list of current assets, cash and cash equivalents rank first followed by short-term investments (Horngree et al., 2005). The inventory which is intended for use within a year comes below the short-term investments. Accounts receivables are next on the list with the prepaid expenses ranking last. From the financial statements of British Petroleum for the year ended 2012, the organization’s current assets are not properly listed. The table below shows how the current assets were listed.
Table 1
Cash and cash equivalents being the most liquid of the current assets should have appeared first in the list. The cash and cash equivalents are distinguished from other current assets because they mature in three months while the other current assets take 12 months or the operating cycle of an organization whichever is less. The derivative financial statements and other investments should have followed each other to represent short-term investments. Next on the list should have been the inventory. As for the account receivables category, trade, and other receivables, current tax receivables and loans should have appeared in this category. Last on the list should have been the prepayments.
In an organization, various assets held have different characteristics and are used for various future economic benefits. While classifying assets, their nature and used bits of help in categorizing them. In the balance sheet, assets are classified as either current assets, fixed assets, property, investments, deferred costs, and intangible assets (Horngree et al., 2005).
Assets for British Petroleum are classified into three categories namely; noncurrent assets, current assets, and assets held for sale. Under the noncurrent assets, the company includes property, plant, and equipment, the company’s goodwill, intangible assets, investments which are controlled jointly, associates investments, loans, trade receivables, and financial instruments, deferred taxes, and surpluses from the pension plan.
The trade receivables, financial instruments, and prepayments are categorized both in the noncurrent and current assets categories (Bp Annual Report, 2012). This is due to the duration in which each of the categories is held. If the period is less than a year, the assets are classified under the current assets while if the assets are held for more than a year, they fall under the noncurrent assets category.
The financial assets of the company are classified at initial recognition at their fair value. This includes the purchase price plus any transaction costs. For the company, these financial assets are loans and receivables, either for sale or those held for hedging purposes (Bp Annual Report, 2012).
References
Bp Annual Report, (2012). Web.
Horngree, Sundem& Elliott, (2005), Introduction to Financial Accounting, Pearson Education, New Delhi.