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Answer:
Firstly Current Assets in a balance sheet are technically "Assets that will provide a future economic benefit" to the company within a period of one financial period (a financial year in Australia - from July 1 to June 30...financial year in USA is different).
Now generally speaking an 'Investment Property' has all the hallmarks of a Long Term Investment, and therefore should be categorized as a Long Term Asset. Why?
Well the whole purpose of an investment property is to provide benefits from two sources...
Firstly renting the property out, you the owner (or company) will gain assessable income by way of RENT.....
Secondly assuming capital growth etc, when you Sell or Dispose of the Asset (property) you will realise a capital gain....the increase in capital growth accumulated over the life of the property....which is always the Market Value, over and above the purchase price.
So back to your question, if it really is an investment property held for the benefit of capital growth, then it would not be a current asset, rather a Long Term Invesment....
(You will also note that a category of the balance sheet in Fixed Asset (Long Term) is Plant Property & Equipment - PPE)
Now heres an interesting point.
Ask yourself are you in the business of Investing or are you (or the company) in the business of trading? ie Buying and Selling Properties?
If you are the latter, ie trader, it may be that you or your company may build, renovate, and 'sell' properties...
In other words you or your company earns 'Income' (here in AUS its called revenue or income according to ordinary concepts) by building and selling properties....
...as such ALL properties owned are INVENTORY.....in which case it would likely therefore to be categorised as CURRENT ASSETS...? why because INVENTORY or STOCK is a category of Current Assets.
...Inventory are like products or items in a shop or Retailer....they earn 'income' by retailing or selling items in their shop..
..So back to the main point, if you feel your company earns income by building, and selling properties, and if it therefore falls under inventory, then Y'ES those properties will be current assets, for that purpose.
...But should a property or properties be kept for over ONE year or more, then it really is an investment and thus fall under Long Term Assets (long term investment)....
Hope that helps
Now generally speaking an 'Investment Property' has all the hallmarks of a Long Term Investment, and therefore should be categorized as a Long Term Asset. Why?
Well the whole purpose of an investment property is to provide benefits from two sources...
Firstly renting the property out, you the owner (or company) will gain assessable income by way of RENT.....
Secondly assuming capital growth etc, when you Sell or Dispose of the Asset (property) you will realise a capital gain....the increase in capital growth accumulated over the life of the property....which is always the Market Value, over and above the purchase price.
So back to your question, if it really is an investment property held for the benefit of capital growth, then it would not be a current asset, rather a Long Term Invesment....
(You will also note that a category of the balance sheet in Fixed Asset (Long Term) is Plant Property & Equipment - PPE)
Now heres an interesting point.
Ask yourself are you in the business of Investing or are you (or the company) in the business of trading? ie Buying and Selling Properties?
If you are the latter, ie trader, it may be that you or your company may build, renovate, and 'sell' properties...
In other words you or your company earns 'Income' (here in AUS its called revenue or income according to ordinary concepts) by building and selling properties....
...as such ALL properties owned are INVENTORY.....in which case it would likely therefore to be categorised as CURRENT ASSETS...? why because INVENTORY or STOCK is a category of Current Assets.
...Inventory are like products or items in a shop or Retailer....they earn 'income' by retailing or selling items in their shop..
..So back to the main point, if you feel your company earns income by building, and selling properties, and if it therefore falls under inventory, then Y'ES those properties will be current assets, for that purpose.
...But should a property or properties be kept for over ONE year or more, then it really is an investment and thus fall under Long Term Assets (long term investment)....
Hope that helps
First answer by VTOnline.
Last edit by VTOnline.
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