Are loose tools current assets?

Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily.

For example – Inventory, Accounts Receivable, Cash, and Cash Equivalents.

Loose tools are parts of machinery or spare parts of machinery. Loose can be classified on the nature of use whether it is a fixed asset or a current asset. If loose tools are used regularly or within one accounting year, it is classified as a current asset.

Loose tools are usually classified as a current asset, however, there is one exception i.e it is excluded from the current ratio.

They are excluded from the current ratio because the current ratio takes into account only current assets, and the nature of loose tools is either a fixed asset or a current asset and can’t be converted into cash easily.

The current ratio is calculated to check the liquidity of the company.

Loose tools appear in the Asset Side of the Balance Sheet under the head Current Asset, subhead Inventories.

The extract of the Balance Sheet is as follows:

When the balance sheet prepared under Schedule III loose tools is shown under notes to accounts under sub-head Inventories on the asset side.

When the balance sheet is in a T format loose appears as a current asset after recording fixed assets on the asset side.