The holding period of current assets is usually less than a year. Whereas for long term assets it is more than a year. Current assets are used to finance current needs such as inventories, salaries and other expenses. Long term funds are used to finance fixed assets.
A pledged asset is collateral pledged by a borrower to a lender. So, fixed assets cannot be pledged whereas current assets can be pledged for granting loans.
Current assets are readily available cash and on the other hand it is not easy to convert long term assets. Also investment in long term assets requires huge capital whereas current assets require short term financing.
A sale of current asset results in profit or loss of revenue nature. Whereas sale of fixed asset will result in capital loss of profit for the company.
Neither current nor long term asset is better than the other. It is the prerogative of the company to invest in current or long term asset. A diversified approach always works better for any business. So a healthy mix of both will result in good profit for the company.
Long term assets are those assets that cannot be immediately converted into cash. These assets have to be in a minimum lock in period of a year. These assets serve as excellent investment devices although they do come with some risk factors.
Capitalization in accounting means the cost to acquire an asset is expensed over the life of the asset rather than in the period it was incurred. In simple terms it means to record the cost of the asset rather than the asset.
The principle of materiality helps explain the concept of capitalization better. For example if the cost of an asset is too small then it is charged to expense immediately.
The question that comes foremost to one’s mind is where we see capitalization. Capitalization is largely seen in asset intensive industries such as manufacturing. In such cases depreciation becomes a large part of the total expense. In service centered companies you will rarely get to see capitalization of assets.