Asset

From Free net encyclopedia

This article is about the business definition. For the definition as used by intelligence agencies, see Asset (Intelligence)

In business and accounting an asset is anything owned which can produce future economic benefit, whether in possession or by right to take possession, by a person or a group acting together, e.g. a company, the measurement of which can be expressed in monetary terms. Asset is listed on the balance sheet. It has a normal balance of debit.

Similarly, in economics an asset is any form in which wealth can be held.

Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board (IASB). The following is a quotation from IFRS Framework:

"An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise." [F.49(a)]

1 Classification of assets
- 1.1 US GAAP
2 Definition of asset
3 See also
4 External links

[edit]

Classification of assets

Assets may be classified in many ways. In a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country.

[edit]

US GAAP

The following is an example of classification according to US GAAP.

[edit]

Current assets

Current assets are cash and other assets expected to be converted to cash, sold, or consumed either in a year or in the operating cycle. These assets are continually turned over in the course of a business during normal business activity. There are 5 major items included into current assets:

Cash - it is the most liquid asset, which includes currency, bank deposits, and negotiable instruments (e.g., money orders, checks, bank drafts).
Short-term investments - include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).
Receivables - usually reported as net of allowance for uncollectible accounts.
Inventory - trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the "lower of cost or market" rule.
Prepaid expenses - these are expenses paid in cash and recorded as assets before they are used or consumed (a common example is insurance). See also adjusting entries.

The phrase net current assets (also called working capital) is often used and refers to the total of current assets less the total of current liabilities.

[edit]

Long-term investments

Often referred to simply as "investments." Long-term investments are to be held for many years and are not intended to be disposed in the near future. This group usually consists of four types of investments:

Investments in securities, such as bonds, common stock, or long-term notes.
Investments in fixed assets not used in operations (e.g., land held for sale).
Investments in special funds (e.g., sinking funds or pension funds).
Investments in subsidiaries or affiliated companies.

[edit]

Fixed assets

Also referred to as PPE (property, plant, and equipment). Assets which are purchased for continued and long-term use in earning profit in a business. This group includes land, buildings, machinery, furniture, tools, wasting resources (timberland, minerals), etc. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land). Accumulated depreciation is shown in the face of the balance sheet or in the notes.

These are also called capital assets in management accounting, especially when intangibles are considered.

[edit]

Intangible assets

Intangible assets lack physical substance and usually are very hard to evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. These assets are (according to US GAAP) amortized to expense over 5 to 40 years with exception of goodwill.

[edit]

Other assets

This section includes a high variety of assets, most commonly:

long-term prepaid expenses
long-term receivables
intangible assets (if they represent just a very small fraction of total assets)
property held for sale.

In a lot of cases this section is too general and broad, because assets could be classified into four above categories.

[edit]

Definition of asset

An asset has potential to earn revenue, its value is managed over life cycle and its failure leads to irrecoverable commercial loss. 'Human asset' is a new term for knowledge economy where professionals are not in problem solving mode but in opportunity creation state. For knowledge economy, achievement is not the term; contribution is the key to success. Human asset can assure that.

Knowledge economy perceives knowledge as the key driver of economic processes. It involves weaving knowledge acquisition, enhancement and innovation into the fabric of the organizations operating in the knowledge zone. The professional domain being a superset of the organizational domain offers limitless opportunities to explore, enhance and innovate. Presence of an asset stresses on exploration, innovation in the domain space to bring excellence and exhibit the domain spirit for opportunity creation. Every organization is being faced with a fresh set of challenges and the solution lies in devising newer ways of harnessing knowledge, leveraging the extended knowledge base to deliver previously unoffered solutions. The key enabler in such a scenario will be a pool of experts or assets who by interaction with the industry and commitment to a particular domain will be in a position to forecast market trends and develop products and, or solutions in line with such trends. In order to further understand the advantage of opportunity creation against problem solving we need to understand the key differences between the concepts. Problem solving, an approach Indian knowledge workers often adopt involves investing in “made to order” solutions. It is basically a quick-fix, adhoc approach wherein a given problem is attacked and solved without resort to in depth analysis or study. While the approach does solve the problem at hand and generates immediate revenue with reduced risk it may not ensure future business in a similar domain. Since the emphasis is on the problem at hand, implicit possibilities are overlooked; the whole approach becomes delivery-centric. As innovation is not encouraged per se creative people are discouraged and lose their excellence committing their energy towards often performing mundane repetitive tasks. Opportunity creation on the other hand requires a long term commitment and investment. Suppose a problem at hand is automating process X for XYZ industry. While problem solving would stop at automating X, opportunity creation would take this a step further to study and analyze the domain, to determine if there is equivalent need for automation in industries operating in similar domain, maybe determine if a customizable solution may be provided which may then be reused in future to solve such a problem should it recur.

The difference between problem solving and opportunity creation may be likened to the difference between buying and renting a house: one aims at creation of a permanent asset that may be a source of potential income, the other devises a low risk, low gain solution that in the long run kills the more important aim of building the house. Opportunity creation requires expertise, skill and commitment, it calls for the creation of a pool of experts with their key specializations who are conscious of the industry at large, who can utilize their awareness to unlock new avenues of earning revenue.

Human Assets are a set of motivated and talented individuals, build them up through the various stages so that they may become rain makers in the industry perceiving and tackling new challenges and creating opportunities, the worth of which may be judged in the open competitive space of knowledge intensive industries.

[edit]