Difference Between Monetary and Nonmonetary Assets

Edited by Diffzy | Updated on: August 08, 2022

       

Difference Between Monetary and Nonmonetary Assets Difference Between Monetary and Nonmonetary Assets

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Introduction

A monetary asset is an asset whose value is declared in or adjustable into a certain amount of cash. Nonmonetary assets are items a company grasps for which it is not possible to accurately ascertain a dollar value. These are assets whose dollar value may differ considerably over time. We will elaborately discuss the dissimilarities between monetary and non-monetary assets in this article.

Monetary Assets vs. Nonmonetary Assets

Monetary assets are assets having a specified cash value that will most probably be obtained when liquidated. Contrarily, Non-monetary assets are assets for whom specified cash value that can be obtained is not fixed and can keep altering over time. Monetary assets can be equitably simply liquidated and converted to cash. Whereas, Non-monetary assets are comparatively illiquid. They cannot be converted into cash effortlessly or instantly. The cash value of monetary assets remains constant and unchanged. Their value remains unchanged in absolute terms and may alter only in relative terms with an alteration in the time value of money. Conversely, the cash value of non-monetary assets is not fastened and altered regarding various market components including demand and supply factors, technological factors, government regulations, etc. Monetary assets are liquid assets and are customarily used to fund working capital requirements emanating from da- to-day operations. For instance, cash and bank balances and amounts obtained from debtors are utilized to pay operational creditors. Whereas, Non-monetary assets are relatively illiquid and thus add up to fixed capital assets that are commonly utilized for producing revenue for the business. For instance, plant and machinery are utilized in the production method, the property produces rental income, etc. Foreign currency monetary assets are recounted at the closing exchange rate that is conventional on the balance sheet date. While Foreign currency non-monetary assets continue to be recounted at their historical or transaction cost even on the balance sheet date. Disposal of monetary assets is commonly at book value and consequently may not have any supplemental tax implication. Any disposal at a higher or lower value is generally taxed as business profit or loss. For instance, if debtors are determined at less than book value, the dissimilarity is accounted for as bad debts. These bad debts are tax-deductible from business benefits. On the other hand, the Disposal of non-monetary assets may beget profit or loss. These are taxed as capital profits or losses. For example, profit on property sold at a higher price after 5 years is taxed as a long-term capital gain. Monetary assets incorporate cash and deposits, bank balance, and accounts receivable. Whereas, Non-monetary assets incorporate plants and machinery, and property. Market-linked investments etc.

Difference between Monetary Assets and Nonmonetary Assets in Tabular Form

Table: Monetary Assets vs. Non-Monetary Assets
Parameters of comparison
Monetary Asset
Nonmonetary Asset
Meaning
Monetary assets are assets having a specified cash value that will most probably be obtained when liquidated.
Non-monetary assets are assets for whom the specified cash value that can be obtained is not fixed and can keep altering over time.
Ease of liquidity
 
Monetary assets can be equitably simply liquidated and converted to cash.
Non-monetary assets are comparatively illiquid. They cannot be converted into cash effortlessly or instantly
Factors that impact the cash value
 
The cash value of monetary assets remains constant and unchanged. Their value remains unchanged in absolute terms and may alter only in relative terms with an alteration in the time value of money
The cash value of non-monetary assets is not fastened and altered regarding various market components.
Relevance
Monetary assets are liquid assets and are generally used to fund working capital requirements emanating from da- to-day operations.
Non-monetary assets are relatively illiquid and thus add up to fixed capital assets that are commonly utilized for producing revenue for the business.
Reporting of foreign currency assets
Foreign currency monetary assets are recounted at the closing exchange rate that is conventional on the balance sheet date
Foreign currency non-monetary assets continue to be recounted at their historical or transaction cost even on the balance sheet date.
Tax implications
Disposal of monetary assets is commonly at book value and consequently may not have any supplemental tax implication. Any disposal at a higher or lower value is generally taxed as business profit or loss.
The Disposal of non-monetary assets may beget profit or loss. These are taxed as capital profits or losses.
Examples
Monetary assets incorporate cash and deposits, bank balance, and accounts receivable.
Non-monetary assets incorporate plants and machinery, and property. Market-linked investments etc.
 

What are Monetary Assets?

A monetary asset is an asset whose value is declared in or adjustable into a certain amount of cash. In this way, $50,000 of cash now will still be taken into account $50,000 of cash one year from now. Instances of monetary assets are cash, accounts receivable, investments, and trade receivable. The term can be more precisely defined to deny access to any assets that cannot be unhesitatingly converted into cash (for example, long-term investments or notes receivable). All monetary assets are taken into account to be current assets. These are recounted as such on a company's balance sheet.

In an inflationary environment, monetary assets will decrease in value. But not if they are invested in interest-bearing or valuing assets that offer returns matching or surpassing the rate of inflation.

 Capital assets including fixed assets are not taken into consideration to be monetary assets, as long as their values decrease over time.

Examples of Monetary Assets

  1. Cash: Cash can be alluded to as a legal tender, which can be used for traffic in goods, services, or debts. They can be in the configuration of currency or coins. Cash has a fastened and secured amount of value. However, the buying power might be affected because of the macroeconomic factors widespreading in the economy, like inflation.
  2. Bank Deposits: Bank deposits signifies the money put down by the person with the banks or other financial institutions. This deposit can be made in the accounts, embracing checking accounts, savings accounts, and money market accounts. These are used as monetary assets. A person can extract money from these accounts, primarily as and when needed.
  3. Trade Receivables: Trade Receivables allude to the amount owed by the company’s customers to it regarding the goods sold for which the payment has not been received from the customers yet. The amounts to be received against them will remain identical and will not alter. Although, the value of goods that were sold changes at receipt of payment.
  4. Other Receivables: They are to be settled through the cash mode, and their value does not change concerning a period.
  5. Investments in Debt Capital: The investment in the debt capital will remain unchanged at the time of its maturity and will remain static with the change in the period.

Features Of Monetary Assets

Up to this point, we have discussed that the monetary assets are liquid, and their face value doesn’t alter. Let’s converse about some characteristics as well as some features of monetary assets as elucidated by International Financial Reporting Standards and GAAP.

The two principal characteristics that interpret a monetary asset.

Change In Real Terms

We have explained the feature of the monetary asset that its face value remains unchanged. The first of the two features is that the monetary asset’s dollar value never alters. Although, such an asset might differ in value in real terms.

For example, an economic event of a rise in inflation will erratically influence money’s purchasing power. The worth of 2000$ will remain identical. Even though, you might not be able to purchase as many goods from that 2000 dollars.

Restatement In Financial Statements

The second distinctive feature of the monetary assets is their divulgence in the financial statements. Everyone who has been related to accounting will be familiar with the fact that the values of assets change. If you possess a building, its value will alter because of depreciation and many unalike reasons. Besides this, in every year’s financial statement, the value of assets is modernized.

Although, a monetary asset doesn’t have acquaintance with the value restatement in the financial statement. A trade receivable will be set down at 2000 dollars one year before and now. So, the monetary assets do not need a restatement of value now and then.

What Are Nonmonetary Assets?

Nonmonetary assets are items a company grasps for which it is not feasible to accurately ascertain a dollar value. These are assets whose dollar value may differ considerably over time. A company may require to change its nonmonetary assets as the assets deteriorate or become outdated. An example of this would be factory equipment and vehicles. Briefly speaking, nonmonetary assets are assets that can be seen on the balance sheet but are not immediately or easily convertible into cash or cash equivalents.

  • A nonmonetary asset alludes to an asset that does not have an accurate dollar value and is not simply convertible to cash or cash equivalents.
  • Firms classify nonmonetary assets as either tangible assets or intangible assets.
  • Instances of nonmonetary assets that are taken into consideration as tangible are a company's property, plant, equipment, and inventory.
  • Instances of nonmonetary assets that are taken into consideration as intangible are a company's property, including its patents, copyrights, and trademarks.

Understanding the Key Concepts of Nonmonetary Assets

Non-monetary assets are assets for whom the specified cash value that can be obtained is not fixed and can keep altering over time.  Monetary assets incorporate cash and cash equivalents, including cash on hand, bank deposits, investment accounts, account receivable (AR), and notes receivable. Apart from this, Nonmonetary assets do not consist of a fixed rate at which the company can convert them into cash. Typical nonmonetary assets of a company incorporate comprise both tangible assets and intangible assets. Tangible Assets have a physical configuration and are the most rudimentary types of assets recorded on a company's balance sheet. Instances of tangible assets are a company's inventory and its property, plant, and equipment (PP&E).

Special Considerations

It is difficult to identify whether an asset is a monetary or nonmonetary asset. The deciding component in such examples is whether the asset's value symbolizes an amount that can be converted into an ascertained cash or a cash equivalent amount within a fleeting amount of time. If it can be converted into cash simply, the asset is defined as a monetary asset. Liquid Assets are assets that can effortlessly be converted into cash in a short period. If it cannot be immediately converted to cash or a cash equivalent in a short period, then it is defined as a nonmonetary asset.

Main Difference Between Monetary and Non-Monetary Assets In Points

The difference between monetary assets and non-monetary assets has been elucidated below:

  • Monetary assets are referred to as the assets which have a specific cash value that will most probably be acquired when liquidated. Whereas, Non-monetary assets are referred to as the assets for whom the specific cash value that can be acquired is not fixed and can keep changing over time.
  • Monetary assets can be simply liquidated and converted to cash. Conversely, Non-monetary assets are comparatively illiquid and cannot be converted into money straight away.
  • The cash value of monetary assets remains unchanged in absolute terms and may vary only in relative terms with an alteration in the time value of money. On a contrary, the cash value of non-monetary assets is not fixed and altered regarding various market components including demand and supply factors, technological factors, government regulations, etc.
  • Monetary assets are used to fund working capital requirements emerging from da- to-day operations. For instance, cash and bank balances and amounts obtained from debtors are utilized to pay operational creditors. Whereas, Non-monetary assets are added up to fixed capital assets that are commonly utilized for generating revenue for the business. For instance, plant and machinery are utilized in the production method, the property produces rental income, etc.
  • Foreign currency monetary assets are reassessed at the closing exchange rate that is conventional on the balance sheet date. On the other hand, foreign currency non-monetary assets continue to be reassessed at their historical or transaction cost even on the balance sheet date.
  • In the case of monetary assets, disposal at a higher or lower value is generally taxed as business profit or loss. For instance, if debtors are determined at less than book value, the dissimilarity is accounted for as bad debts. These bad debts are tax-deductible from business benefits. Whereas, Disposal of non-monetary assets may cause profit or loss. These are taxed as capital profits or losses. For example, profit on property sold at a higher price after 5 years is taxed as a long-term capital gain.
  • e examples of monetary assets are cash and deposits, bank balance, and accounts receivable. Whereas, examples of non-monetary assets are plants and machinery, proper market-linked investments, etc.

Conclusion

Well, we have discussed the main topic which is the “Difference between monetary and non-monetary assets” in detail. Hope you got a clear understanding of the dissimilarities between the terms monetary and non-monetary assets. In a conclusion, we can say that this content will be effective for you for a better understanding of the differences between monetary and non-monetary assets. For further information, tell us by commenting down below.

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"Difference Between Monetary and Nonmonetary Assets." Diffzy.com, 2022. Sun. 25 Sep. 2022. <https://www.diffzy.com/article/difference-between-monetary-and-nonmonetary-assets-846>.



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