Balance sheet of a company comprises of assets and liabilities. Assets of a company are divided into three categories: fixed assets, current assets and fictitious assets.

Thus, total assets can be determined by adding the values of total fixed assets, total current assets and total fictitious assets.

In order to calculate total assets of a company, we first need to understand the meaning of fixed, current and fictitious assets.

Fixed Assets

Fixed assets represent long term assets of the company such as land and building, plant and machinery, furniture and fixtures and so on. Fixed assets are necessary for carrying out core business activities (such as production) of the company which ultimately helps in generating revenue for the company.

A fixed asset is expected to yield benefits for a period longer than one year and hence its purchase cost is not reported in the profit and loss account. Fixed assets are directly recorded in the balance sheet of the company. However, fixed assets are subject to depreciation on an annual basis which results in a reduction in the value of fixed assets.

Current Assets

Current assets represent short term assets of the company which includes cash, inventory, prepaid expenses, trade receivables and short term investments. Cash represents the amount of money that is available with the company in the form of cash in hand and cash at bank. Trade receivables represent the amount of money that a company has to receive from its customers.

Trade receivables arise only when goods are sold on credit by the company. Inventory comprises of raw material for production purposes, work in progress and finished goods meant for sale. Prepaid expenses represent those expenses which have been paid by the company in advance for a future period. A company may also hold short term investments having a maturity period of less than one year. Such investments are generally made when a company has idle funds for a short duration.

Fictitious Assets

Fictitious Assets represent those expenditures which have no real value attached to them. Preliminary expenses and discount on issue of shares are examples of such form of expenditures. Such expenditures are required to be written off by the company as and when the benefits expected from these expenditures are realized by the company.

Let us determine the Total Assets with the help of an example.

Balance sheet of XYZ Company comprises of following amounts

Land and Building

$ 4, 00,000, Plant and Machinery: $ 2, 00,000, Furniture and Fixtures:  $ 1, 00,000, Cash: $ 50,000, Inventory: $ 1, 00,000, Prepaid Expenses $ 20,000, Trade Receivables: $ 1, 10,000, Preliminary Expenses: $ 60,000

Company’s total assets would be the sum of the figures of Fixed assets, Current assets, and Fictitious assets.

Fixed Assets

$ 4, 00,000 (Land and Building) + $ 2, 00,000 (Plant and Machinery) + $ 1, 00,000 (Furniture and Fixtures) = $ 7, 00,000

Current Assets

$ 50,000 (Cash) + $ 1, 00,000 (Inventory) + $ 20,000 (Prepaid Expenses) + $ 1, 10,000 (Trade Receivables) = $ 2, 80,000

Fictitious Assets

$ 60,000 (Preliminary Expenses)

Company’s Total Assets

$ 7, 00,000 (Fixed Assets) + $ 2, 80,000 (Current Assets) + $ 60,000 (Fictitious Assets) = $ 10, 40,000.

Considering a depreciation of 10% on plant and machinery and 5% on furniture and fixtures, the value of plant and machinery and furniture and fixtures would be reported as $ 1, 80, 000 and $ 95,000 respectively in the balance sheet. This will reduce the value of total assets from $ 10, 40, 000 to $ 10, 15,000.