What are Assets

5 Key excerpts on "What are Assets"

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  eBook - ePub

  Balance of Payments Manual, Sixth Edition

  • International Monetary Fund(Author)
  • 2010(Publication Date)
  • INTERNATIONAL MONETARY FUND

    (Publisher)

  The economic owner of the asset is the party who has the risks and rewards of ownership . Rewards of ownership usually include the right to use, rent out, or otherwise generate income, or to sell the asset. The risks include the potential losses caused by damage, theft, and holding losses; that management, transfer, or maintenance costs are greater than anticipated; and, in the case of financial assets, default of the counterparty. Ownership may be subject to costs such as maintenance and taxes. Usually, the economic owner is the same as the legal owner, but they may differ in cases such as financial leases. Under some legal arrangements, elements of the risks and rewards are split between different parties, so it is necessary to identify which party has the bulk of risks and rewards to identify the economic ownership. Every economic asset has demonstrable value, functioning as a store of value that reflects the amounts of the economic benefits that its owner can derive by holding it, using it, or providing it temporarily to another entity. It may be tangible or intangible. Different kinds of economic benefits that may be derived from an asset include:

  • (a) the ability to use assets, such as buildings or machinery, in production;
  • (b) the generation of services, for example, renting out produced assets to another entity;
  • (c) the generation of property income (e.g., interest and dividends received by the owners of financial assets); and
  • (d) the potential to sell and thus realize holding gains.

  In the special case of a short position, a negative asset is identified, as discussed in paragraph 7.28.

  5.4 The classification system of economic assets recognized in macroeconomic data sets is shown in Table 5.1 . In the international accounts, produced assets are covered in the goods and services account, nonproduced nonfinancial assets in the capital account, and financial assets and liabilities in the financial account and IIP. This chapter deals with the classification of financial assets and liabilities.

  Table 5.1 . Economic Asset Classification

  (Includes 2008 SNA codes)

  2. Financial instruments

  5.5 Financial instruments consist of the full range of financial contracts made between institutional units . Financial instruments may give rise to financial claims (as discussed in paragraph 5.6) or not (as discussed in paragraphs 5.10–5.13).

  3. Claims

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  eBook - ePub

  Fair Value Measurements

  Practical Guidance and Implementation

  • Mark L. Zyla(Author)
  • 2009(Publication Date)
  • Wiley

    (Publisher)

  CHAPTER 3

  The Nature of Intangible Assets

  One interesting aspect of fair value measurement in financial reporting is the increased recognition that intangible assets contribute value to an entity. Every entity, large and small, is made up of both tangible and intangible assets that work in conjunction to create value for the entity. Tangible assets are easily understood. They are assets with physical characteristics that we can typically see; inventory, machinery, and real estate are tangible assets that usually comprise a significant portion of the business enterprise. However, intangible assets are also a major component of a business enterprise. Intangible assets are unique because they generally cannot be observed or touched. Intangible assets typically lack physical substance, but they provide their owner with valuable rights and privileges. Estimating the fair value of these intangible properties creates challenges for those engaged in financial reporting.

  The International Glossary of Business Valuation Terms defines intangible assets as “nonphysical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts (as distinguished from physical assets) that grant rights and privileges and have value for the owner.”1 The Dictionary of Finance and Investment Terms has a similar view of intangible assets, defining them as a “right or nonphysical resource that is presumed to represent an advantage to the firm’s position in the market place. Such assets include copyrights, patents, trademarks, goodwill, computer programs, capitalized advertising costs, organization costs, licenses, leases, franchises, exploration permits, and import and export permits.”2 The accounting perspective provided by the Financial Accounting Standards Board (FASB) refers to intangible assets as “assets (not including financial assets) that lack physical substance.”3

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  eBook - ePub

  Fair Value Measurement

  Practical Guidance and Implementation

  • Mark L. Zyla(Author)
  • 2019(Publication Date)
  • Wiley

    (Publisher)

  Such assets include copyrights, patents, trademarks, goodwill, computer programs, capitalized advertising costs, organization costs, licenses, leases, franchises, exploration permits, and import and export permits.” 2 The accounting definition provided by the Financial Accounting Standards Board (FASB) refers to intangible assets as “assets (not including financial assets) that lack physical substance.” 3 The FASB's definition of intangible assets excludes goodwill while the definition used by traditional corporate finance and valuation professionals includes goodwill in the broader definition of intangible assets. HISTORY OF INTANGIBLE ASSETS Intangible assets represent the intellectual capital of an entity. As such, intangibles represent knowledge. Human history is predicated on development of knowledge. Intangible assets are not new phenomena; they have existed throughout human history. Changes in communications technology from the invention of the printing press in the fifteenth century and the telegraph in the nineteenth century, to the telephone, television, and the Internet in the twentieth century, provide an example of how changes in technology impact mankind's advancement. The development of new technologies and legal protections such as patents and copyrights afforded those new technologies creates significant value for the intangible assets' owners. As discussed previously, both the U.S. and global economies have undergone a tremendous shift, from “bricks and mortar” businesses to information‐based businesses that require less investment in tangible assets such as machinery and buildings. Additionally, the globalization of international trade and the development of new information‐based technologies in the past 20 years have contributed to recent recognition that intangible assets add value to an entity

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  eBook - PDF

  Advanced Engineering Economics

  • Chan S. Park, Gunter P. Sharp(Authors)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  We will look at some of these balance sheet items in more detail. Assets The assets of a company consist of all its property: what it owns and what is owed to it. The assets are generally divided into three principal categories and are listed in decreasing order of liquidity, where liquidity refers to the ease with which an asset can be converted to cash. • Current assets are listed first. These assets can be converted to cash or its equivalent in less than one year. For example, cash, the most liquid asset, is generally listed at the top of the current assets column on a balance sheet. Other current assets in order of decreasing liquidity would be marketable securities, accounts receivable and inventories, prepaid expenses, and deferred charges. Prepaid expenses might include insurance premiums and rent, whereas deferred charges represent expenses for materials and services whose benefits will extend into the future. • Fixed assets are listed second. These assets are relatively permanent and are not con- verted to cash or its equivalent in the normal business operating cycle. The major types of fixed assets are land, buildings, factory machinery, equipment, tools, office equipment, furniture, automobiles, trucks, and other vehicles. • Other assets, if any, are listed third. Assets in this category include investments made in other companies (to control their operations) and intangible assets such as goodwill, copyrights, and franchises. Liabilities and Net Worth (Owners’ Equity) The liabilities of a company disclose where the funds were obtained to acquire the assets and to operate the business. Liabilities are claims of creditors that take precedence over the 10 CHAPTER 1 Accounting Income and Cash Flow rights of the owners to the assets. Net worth refers to the portion of the assets of a company that is provided by the investors (owners). Liabilities are separated into current and other liabilities.

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  eBook - ePub

  Financial Accounting

  A Concepts-Based Introduction

  • David Kolitz(Author)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  expenses.

  2.5.1 The statement of financial position and the elements: assets, liabilities and equity

  The elements directly related to the measurement of the financial position in the statement of financial position are assets, liabilities and equity. These elements are all defined in the IASB’s Conceptual Framework.

  Assets

  An asset is:

  • a resource controlled by the entity

  • as a result of past events

  •  from which future economic benefits are expected to flow to the entity.

  For a resource to be controlled by the entity, physical form and right of ownership are not essential. Many assets, for example property or equipment, have a physical form and are associated with the right of ownership. However, intangibles such as patents and copyrights may have no physical form other than a certificate of registration. They are, however, assets if they are controlled by the entity and future economic benefits are expected to flow from them. Equipment held on a lease is not legally owned by the lessee, but the substance of the agreement may give the lessee control over the benefits which are expected to flow from the equipment.

  Financial assets, such as accounts receivable, are also a resource controlled by the entity. In the case of accounts receivable, when the entity has sold goods or provided a service to customers on credit, the resource controlled is the right to collect cash from the customers.

  In addition to tangible assets, intangible assets and financial assets, there are other assets, for example rent paid in advance, which also represents a resource controlled by the entity, namely the right to occupy the property.

  Pause and reflect…

  a) A business entity sells goods on credit or on account to its customers. Selling on credit means that the customer agrees to pay the business entity for the goods at a later date. These customers are known as accounts receivable or debtors

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