Wednesday 1 March 2017

Assets

Introduction
Assets consist of property of all kinds, such as business buildings, machinery, furniture and fixtures, motor vehicles, stocks of goods as well as debts owed by customers, cash at bank and cash at hand, etc.

Definition of Assets
Assets are probably future economic benefits obtained or controlled by a particular enterprise as a result of past transactions or events affecting the enterprise.

Asset is resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Essential characteristics of an asset
A.    A probable future benefit exists involving a capacity, singularly or in combination with other assets to contribute directly or indirectly to future net cash inflows.
B.     The enterprise can obtain the benefit if not a prerequisites for an asset.
C.     The transaction or other event giving rise to the enterprises claim to or control of the benefit has already occurred.

Once enterprise acquired an asset, it  continue as an asset until the enterprise  transfers it to another entity or uses it , or  another event or circumstance destroys the future benefit or removes the enterprises ability to obtain it.

Employees are not considered assets like machinery is, even though they can generate future economic benefits. This is because an entity does not have sufficient control over its employees to satisfy the Framework's definition of an asset. Resources that are expected to yield benefits only for a short time can also be considered not to be assets,
The accounting equation is the mathematical structure of the balance sheet. It relates assets, liabilities, and owners equity.
Assets = Liabilities + Capital

Types of asset
Assets are designated under the fallowing headings.
1.      Fixed asset
Fixed assets may be regarded as those assets of a business which are of a permanent nature, and are definitely held for the purpose of earning revenue and not with a view to resale e.g. plant and machinery, buildings.
2.      Current assets
These may be regarded as those assets which are or acquired and merely held for a short period of time with a view to sale at a profit in the ordinary course of business, that is to say, they are easily convertible into cash e.g. receivables, stock, bill receivable etc.
3.      Fictitious assets
These are merely debit balances not written off, that is items of expenditure or losses of an unusual character which are not recoupable e.g. preliminary expenses.