What are assets?

What are assets?

Asset is a economic resource that is under the control of entity and resulted from an past event and it generates economic benefit for the organization.

Characteristic of Asset

1. Control: The resource must be under the control of organization. Control mean that entity has control over the benefit of the assets. For example machinery is purchased but shall be used by seller for two months is not as asset of the organization.

2.  Past event: Asset must result from the past event. It means that future resource control cannot be treated as asset. For example an entity planning to purchase an asset in next month’s cannot be treated as assets presently.

3. Generate Economic benefit: An asset must be able to generate economic benefit for the organization. For example machinery purchased by the entity but later on found that those assets cannot be sold within country and there is no return provision is available. Purchase stock will not be treated as asset because future economic benefit will not flow from the assets.

4. Legal title not required: Asset definition does not require legal title and a resource can be treated as asset even without legal title, assets under finance lease is the most common example in this regard.

5. Physical form not required: An asset does not require physical existence and there are number of assets that does have physical existence known as intangible assets. The most common example of intangible asset is Goodwill.

How many ways asset can produce benefit for organization?

1.       Production: Asset can be utilized in the production process of goods i.e. stock

2.       Exchange : Asset can be exchanged with other assets

3.       Settle Liability : Asset can be used to settle a liability