The deciding factor is intention. Company law defines fixed assets as assets intended for use on a continuing basis in the company’s activities and current assets as assets not intended for such use, so an investment held for the long term goes under fixed asset investments and one held for resale or as a short term home for surplus cash goes under current asset investments.
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What is the legal test?
The definition sits in the general interpretation schedules to the accounts regulations. Schedule 10 paragraph 4 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008, and Schedule 8 paragraph 3 of the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008, both say that fixed assets means assets of a company which are intended for use on a continuing basis in the company’s activities, and current assets means assets not intended for such use.
Nothing in the definition refers to the type of investment, whether it is listed or how quickly it could be sold. A listed share can be a fixed asset and a holding in a private company can be a current asset. What counts is what the directors intend to do with it, judged at the balance sheet date and supported by evidence.
Where does each type appear on the balance sheet?
The statutory formats in Schedule 1 to the 2008 regulations provide two homes, described further in balance sheet formats:
| Heading | Sub items |
|---|---|
| B.III Investments (fixed assets) | Shares in group undertakings; loans to group undertakings; participating interests; loans to undertakings in which the company has a participating interest; other investments other than loans; other loans; own shares |
| C.III Investments (current assets) | Shares in group undertakings; own shares; other investments |
Cash at bank and in hand is a separate current asset item, C.IV. A company using adapted formats under paragraph 1A(1) of Schedule 1 still has to distinguish current from non current items, and FRS 102 paragraph 4.2B requires investments to be analysed between shares and loans.
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How do you judge intention in practice?
Some useful indicators:
- Subsidiaries, associates and joint ventures are almost always held for continuing use and belong under fixed assets. Their measurement in the investor’s own accounts is covered in investments in subsidiaries in the parent’s accounts.
- Long term portfolios, such as a listed equity fund held to generate returns over several years, are fixed asset investments even though they could be sold quickly.
- Investments bought to sell, or to park cash that is needed within the year, are current asset investments.
- Loans to group companies follow the lender’s intention, not the contract. ICAEW’s helpsheet on fixed asset investments explains that a loan contractually repayable on demand can still be a fixed asset investment for the lender if it is intended to meet the borrower’s ongoing capital needs and repayment is not expected in the near future.
The same helpsheet points out that the borrower looks at the contract instead. Under FRS 102 paragraph 4.7, a creditor is due within one year when the entity does not have an unconditional right to defer settlement for at least twelve months, so the subsidiary shows an on demand loan as a current liability even though the parent shows it as a fixed asset. That mismatch is correct. Property held to earn rent is not an investment under these headings; see investment property accounting.
Does the classification change how the investment is measured?
Under the historical cost rules in Schedule 1, yes. A fixed asset is included at purchase price or production cost (paragraph 17), and for a fixed asset investment under item B.III, paragraph 19 permits a provision for any diminution in value and requires one where the reduction is expected to be permanent. A current asset is included at purchase price or production cost (paragraph 23) unless its net realisable value is lower, in which case net realisable value is used, with the write down reversed if the reasons for it cease to apply (paragraph 24). Paragraph 32(3) also allows B.III investments to be carried at market value at the last valuation or on another basis the directors consider appropriate, with the method and reasons disclosed.
Under FRS 102 the measurement is driven mainly by what the instrument is. ICAEW notes that ordinary shares and similar equity investments within Section 11 are measured at fair value through profit or loss where they are publicly traded or their fair value can otherwise be measured reliably, and at cost less impairment where it cannot. Investments in subsidiaries, associates and jointly controlled entities in the investor’s own accounts use cost less impairment or one of the fair value options, applied consistently by class. So for most companies the fixed or current label decides where the investment sits and what is disclosed about it, more than the number. The measurement detail is in basic financial instruments under FRS 102 and unquoted equity investments.
What disclosures follow from the choice?
- Fixed asset movements. Paragraph 51 of Schedule 1 requires, for each fixed asset item, opening and closing amounts and the effect of revaluations, acquisitions, disposals and transfers. FRS 102 paragraph 3.14A means no comparative reconciliation is needed for the prior year.
- Listed investments. Paragraph 54 applies to investments whether shown as fixed or current: the amount ascribable to listed investments must be stated, together with their aggregate market value where it differs from the carrying amount.
- Cash equivalents. For a company preparing a cash flow statement, FRS 102 paragraph 7.2 says an investment normally qualifies as a cash equivalent only if it has a short maturity of, say, three months or less from acquisition. A current asset investment is not automatically cash; see the cash flow statement.
How does it work in an example?
Illustration only. A trading company has £300,000 of surplus cash and makes three investments in the year.
| Investment | Intention | Heading |
|---|---|---|
| £150,000 in a listed equity fund | Hold for at least five years to fund future expansion | B.III Other investments other than loans |
| £50,000 in government bonds | Sell within six months to pay a tax liability | C.III Other investments |
| £100,000 loan to a new subsidiary, repayable on demand | Working capital for the subsidiary, no plan to call it in | B.III Loans to group undertakings |
The listed fund appears in the fixed asset movements note as an addition, and both the fund and the bonds are counted in the paragraph 54 listed investments disclosure. The subsidiary shows the £100,000 within creditors due within one year.
Can an investment move between headings?
Yes, when the intention genuinely changes, for example when the board decides to sell a subsidiary or a strategic holding. A transfer out of fixed assets is one of the movements paragraph 51 requires to be shown. The reason should be recorded in the board minutes, because a reclassification that happens to improve net current assets just before a covenant test is the kind of change a lender or auditor will question.
What mistakes come up most often?
- Treating every listed investment as a current asset because it is easy to sell.
- Showing a loan to a subsidiary as a current asset in the parent simply because it is repayable on demand, without considering the intention.
- Including fixed term deposits longer than three months in cash, or calling every current asset investment a cash equivalent.
- Omitting the listed investments and market value disclosure for current asset investments, which paragraph 54 covers too.
- Moving investments between headings without a documented change of intention.
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Related Accountapedia entries
- Creditors due within and after one year
- Accounting for listed shares held by a company
- The fixed asset note: costs and depreciation
- FRS 102 Section 12: other financial instruments
- Assets held for sale: FRS 102 and IFRS 5
- Stock valuation: lower of cost and net realisable value
Sources
- legislation.gov.uk: SI 2008/410, schedule 10
- legislation.gov.uk: SI 2008/409, schedule 8
- legislation.gov.uk: SI 2008/410, schedule 1
- Financial Reporting Council: FRS 102 September 2024 tmKYWO6
- ICAEW: Fixed asset investments under frs 102
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.