ASSET CLASSIFICATION

Asset classification is a system for assigning assets into groups, based on a

number of common characteristics. Various accounting rules are then applied to
each asset group within the asset classification system, to properly account for
each group. The groups are also typically clustered for reporting purposes in
the balance sheet. Common asset classifications are as follows:

 Cash. Includes cash in checking accounts, petty cash, and deposit

accounts.
 Receivables. Includes trade receivables and receivables due from
employees.
 Inventory. Includes raw materials, work-in-process, and finished goods.
 Fixed Assets. Includes buildings, computer equipment, computer
software, furniture and fixtures, and vehicles.

Two broader classifications of assets are the designations of  current

assets and long-term assets. These classifications are strictly time-based. The
current asset designation refers to all assets that will be used within one year.
The long-term asset designation refers to all assets that will be used in more
than one year.

As an example of how accounting rules may be applied to the assets within a

group, all of the fixed assets in the computer software group could be assumed
to have the same useful life, to which is applied a
standard depreciation methodology. Doing so makes it easier to account for the
assets in this group.

The concept of asset classification can also apply to the different types of
investments that a person or entity holds. Examples of these asset
classifications are:
 Bonds
 Cash holdings
 Collectibles
 Commodities
 Equity securities
 Real estate

Asset classificationAssets can be categorized into Four categories namely (1)

Standard (2) Sub -Standard(3) Doubtful (4) Loss the last three categories are
classified as NPAs based on the period forwhich the asset has remained non-
performing and the realisability of the dues.

1) Standard assets: The loan accounts which are regular and do not carry more
than normal risk. Within standard assets, there could be accounts which
though have not become NPA but are irregular. Such accounts are called as
special Mention accounts

2) Sub-Standard Assets: With effect from 31.3.2005, a sub- standard asset is

one, which is classified as NPA for a period not exceeding 12 Months (earlier
it was 18 months). In such cases, the current net worth of the borrower/
guarantor or the current market value of the security charged is not enough
to ensure recovery of the dues to the bank in full. In other words, such an
asset will have well defined credit weakness that jeopardize the liquidation
of the debt and are characterized by the distinct possibility that the banks
will sustain some loss, if deficiencies are not corrected.

3) Doubtful Assets: With effect from 31 march 2005, an asset is to be

classified as doubtful, if it has remained NPA or sub standard for a period
exceeding 12 months (earlier it was 18 months). A loan classified as doubtful
has all the weaknesses inherent in assets that were classified as sub-
standard, with the added characteristic that the weakness make collection
or liquidation in full,- on the basis of currently known facts, conditions and
values- highly questionable and improbable.

4) Loss assets: A loss asset is one where loss has been identified by the bank
 or internal or external auditors or the RBI inspection but the amount has not
been written off wholly. In other words, such an asset is considered
uncollectible and of such little value that its continuance as a bankable
asset is not warranted although there may be some salvage or recoverable
value.

When a Sub Standard account is classified as Doubtful or Loss without waiting

for 12 months: Ifthe realizable value of tangible security in a sub Standard
account which was secured falls below10% of the outstanding, it should be
classified loss asset without waiting for 12 months and if therealizable value of
security is 10% or above but below 50% of the outstanding, it should beclassified
as doubtful irrespective of the period for which it has remained NPA.

Assets can be categorized into Four categories namely (1) Standard (2) Sub -Standard

(3) Doubtful (4) Loss the last three categories are classified as NPAS based on the
period for

which the asset has remained non-performing and the reliability of the dues

1. Standard assets: The loan accounts which are regular and do not call more
than normal risk. Within standard assets, there could be accounts which though
have not become NPA but are irregular. Such accounts are called as special
Mention accounts.

2. Sub-Standard Assets: With effect from 313.200S, a sub- standard asset is one,
which is classified as NPA for a period not exceeding 12 Months (earlier it was
18 months), In such cases, the current net worth of the borrower/ guarantor or
the current market value of the security charged is not enough to ensure
recovery of the dues to the bank in full. In other words, such an asset will have
well defined credit weakness that jeopantize the liquidation of the debt and are
characterized by the distinct possibility that the banks will sustain some loss, if
deficiencies are not corrected
3. Doubtful Assets: With effect from 31 march 2005, an asset is to be classified
as doubtful, if it has remained NPA for sub standard for a period exceeding 12
months. A loan classified as doubtful has all the weaknesses inherent in assets
that were classified as sub-standard, with the added characteristic that the
weakness make collection or liquidation in full,- on the basis of currently
known facts,conditions and values- highly questionable and improbable.

4. Loss assets: A less asset is one where loss has been identified by the hank or
internal or external auditors or the RBI inspection but the amount has not been
written off wholly, In other words, such an asset is considered uncollectible
and of such little value that its continuance as a bankable asset is not warranted
although thete may be some salvage or recoverable value.