Question
Question 11 An example of a long-term asset is: Prepayments Trade receivable Property, plant and equipment Trade payable Rent Bank loan Inventory Cash
Answer
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Keren
Master · Tutor for 5 years
Answer
C - Property, plant, and equipment is an example of a long-term asset.
Explanation
## Step1: In the context of financial statement reporting, different classifications are made for different types of assets. Such classifications include current assets and non-current assets, popularly known as long-term assets. The key difference between current and long-term assets orbits around their usage duration. ## Step2: Current assets—like prepayments, trade receivable, cash, and inventory—usually get used up or consumed within one accounting period, generally a year. For instance, cash is just a means for monetary transactions, and obviously, we don't hold onto cash for more than a year to drain benefits from it. Similarly, companies always aim to quickly convert their inventory held for sales into cash or equivalents and hence short-term. Trade receivable refers to the amount that a company has billed for and expects to recover from customers—it, too, needs settled quickly, usually within a year. As for prepayments, they are currently used for imminent expenses expected within a year. ## Step3:On the flip side, long-term assets or non-current assets, typically a company's primary sources of income and operation like property, plant, and equipment, are held for an extended period, often for several years. Businesses don't buy such expensive resources intending to consume them within a short span—they're meant for long-lasting utility that worth their costs. ## Step4:Other items here, like trade payable, bank loan, and rent, are either liabilities—not assets—or short-term expenses. Trade payable and bank loan represent money owed to others and do not qualify as company assets. Rent usually related to periodic payments made towards the use of property and falls under expense items rather than assets.