Other current assets are a type of categorization of assets. These are residual current assets that have not been specified by the company or regulations or do not meet the criteria of being classified separately.
They are referred to as they are uncommon and insignificant, like the current assets like cash, accounts receivables, and prepaid expenses.
Other current assets are listed under the assets side of the firm’s balance sheet. Other current assets are characterized as uncommon or insignificant. Other current assets are rarely recorded in the financial statements. Hence, the net balance in other current assets accounts is typically small.
Understanding Other Current Assets (OCA)
The major components of assets are either fixed assets or current assets. Fixed assets are non-current assets such as buildings, printers, plants, and machinery. These assets have a span of more than 1 year and are beneficial in the long run.
On the other hand, current assets are short-term assets whose benefits will accrue within 12 months. They are the assets that can be easily sold, utilized, consumed, or exhausted in the process of daily operations. Current assets include cash, marketable securities, inventory, and prepaid expenses.
Current assets that are not specified or uncommon won’t be categorized under current assets. Instead, they will be thrown into the residual heading of other current assets.
Instead, these assets will be taken to a generic “other” category and recognized as other current assets (OCA) on the balance sheet.
Examples of other current assets shall include:
- Restricted cash or investments
- Advances paid to employees or suppliers
- The cash surrender value of life insurance policies
- Property that is being readied for sale
- Marketable securities in negligible balance
Special Considerations in case of other current assets
They have to clearly break down other current assets in their quarterly and annual filings for publicly listed companies.
However, they represent no so significant amount of expense. Hence, the companies may choose to ignore showing other current assets separately.
However, OCA would be placed under footnotes to financial statements. Rarely explanations are needed for OCA. However, when needed, the company shall offer explanations in notes to accounts.
Other current assets are generally assumed to be disposed of within an accounting cycle that would be 12 months. The nature of each OCA needs to be determined. The management needs to know about the liquidity of OCA.
If accounts in other current assets in the past year become material in the current year, they may need to be disclosed into major defined current assets accounts. This would slowly create insightful information in the minds of investors.
The simple calculation for OCA would be by subtracting from current assets the current asset accounts as cash & cash equivalents, accounts receivable, marketable securities, inventory, and prepaid expenses.
it is represented as,
OCA = Total Current Assets – Cash & Cash Equivalents – Accounts Receivable – Marketable Securities – Inventory – Prepaid Expenses
Let’s take the example of Sinra Ltd that had recently filed its annual financial statements. The following details about current assets were available.
Cash & Cash Equivalents – $ 100,000
Accounts Receivable – $ 200,000
Marketable Securities – $ 30,000
Inventory – $ 160,000
Prepaid Expenses – $ 50,000
Total Current Assets – $600,000
The Calculation of OCA can be done as:
|Total current assets
|Cash and cash equivalents
|Other current assets
When to disclose other current assets separately?
This is a tricky thing for the management as well. Company regulations are clear on the threshold based on percentages, and accounts need to cross to be separately disclosed on the balance sheet.
However, it is an industry practice that if other current assets are more than 10% of current assets, they need to be shown separately.
A note to financial statements needs to be attached to the balance sheet explaining the breakup of other current assets if possible. Hence, management has to be careful in doing so.
Further, the audit concept of materiality may be imposed in this scenario whether they need to be identifiable. This would depend on the nature and size of assets under other current assets.