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ASSETS

An asset is a resource controlled by the entity as a result of past events or transactions



and from which future
economic benefits are expected to flow to the entity.
In financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being
owned or controlled to produce value and that is held to have positive economic value is considered an asset.
Current assets
1. Accounts receivable: Money owed by customers (individuals or corporations) to another entity in exchange
for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the
form of operating lines of credit and are usually due within a relatively short time period, ranging from a few
days to a year.

On a public company's balance sheet, accounts receivable is often recorded as an asset because this
represents a legal obligation for the customer to remit cash for its short-term debts.

2. Inventories: The raw materials, work-in-process goods and completely finished goods that are considered to
be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the
most important assets that most businesses possess, because the turnover of inventory represents one of
the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

Possessing a high amount of inventory for long periods of time is not usually good for
a business because of inventory storage and spoilage costs. However, possessing too little inventory isn't
good either, because the business runs the risk of losing out on potential sales and potential market share as
well.

3. Cash and cash equivalents(E.g.: stocks)

4. Prepaid expenses for future services that will be used within a year

Fixed-assets
Fixed assets are classified in a company's balance sheet as intangible, tangible, or investments.
Examples of intangible assets include goodwill, patents, and trademarks. Examples of tangible fixed assets
include land and buildings, plant and machinery, fixtures and fittings, motor vehicles and IT equipment.

1. Real estate property

2. Investment property held for investment purposes


3. Intangible assets: An asset, other than a financial asset, that lacks physical substance. It include patents,
copyrights, trademarks, trade names, franchise licenses, government licenses, goodwill, and other items that
lack physical substance but provide long-term benefits to the company.
The process of allocating the cost of intangible assets to expense is called amortization.

An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in
the production or supply of goods or services, for rental to others, or for administrative purposes.
Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its
useful life. (It is a process of decreasing or accounting for an amount over a period.)
Depreciable amount is the cost of an asset less its residual value.

Residual value is the amount which an enterprise expects to obtain for an asset at the end of its
useful life after deducting the expected costs of disposal.

A. Patents: Patents provide exclusive rights to produce or sell new inventions. When a patent is purchased
from another company, the cost of the patent is the purchase price. If a company invents a new product
and receives a patent for it, the cost includes only registration, documentation, and legal fees associated
with acquiring the patent and defending it against unlawful use by other companies.
Research and development costs, which are spent to improve existing products or create new ones,
are never included in the cost of a patent; such costs are recorded as operating expenses when they are
incurred because of the uncertainty surrounding the benefits they will provide.

The legal life of a patent is seventeen years, which often exceeds the patent's useful life. Suppose a
company buys an existing, five-year-old patent for $100,000. The patent's remaining legal life is twelve
years. If the company believes the patent's remaining useful life is only ten years, they use the straight-
line method to calculate that $10,000 ($100,000 10 = $10,000) must be recorded as amortization
expense each year.

B. Copyrights: Companies amortize a variety of intangible assets, depending on the nature of the
business. Copyrights provide their owner with the exclusive right to reproduce and sell artistic works, such
as books, songs, or movies. The cost of copyrights includes a nominal registration fee and any
expenditure associated with defending the copyright. If a copyright is purchased, the purchase price
determines the amortizable cost. Although the legal life of a copyright is extensive, copyrights are often
fully amortized within a relatively short period of time. The amortizable life of a copyright, like other
intangible assets, may never exceed forty years.

C. Trademarks and trade names: Trademarks and trade names include corporate logos, advertising
jingles, and product names that have been registered with the government and serve to identify specific
companies and products. All expenditures associated with securing and defending trademarks and trade
names are amortizable.

D. Franchise licenses: The purchaser of a franchise license receives the right to sell certain products or
services and to use certain trademarks or trade names. These rights are valuable because they provide
the purchaser with immediate customer recognition. Many fast-food restaurants, hotels, gas stations, and
automobile dealerships are owned by individuals who have paid a company for a franchise license. The
cost of a franchise license is amortized over its useful life, often its contractual life, which is not to exceed
forty years.

E. Government licenses: The purchaser of a government license receives the right to engage in
regulated business activities. For example, government licenses are required to broadcast on specific
frequencies and to transport certain materials. The cost of government licenses is amortizable in the same
way as franchise licenses.

F. Goodwill: Goodwill equals the amount paid to acquire a company in excess of its net assets at fair
market value. The excess payment may result from the value of the company's reputation, location,
customer list, management team, or other intangible factors. Goodwill may be recorded only after the
purchase of a company occurs because such a transaction provides an objective measure of goodwill as
recognized by the purchaser. The value of goodwill is calculated by first subtracting the purchased
company's liabilities from the fair market value (not the net book value) of its assets and then subtracting
this result from the purchase price of the company.

G. Financial assets: A financial asset is an intangible representation of the monetary value of a physical
item. It obtains its monetary value from a contractual agreement of what it represents. A financial asset is
a document that has no fundamental value in of itself until it is converted to cash. Common types of
financial assets include certificates, bonds, stocks, and bank deposits.

Once a firm begins to expand, it needs to find sources of capital to finance its business plans. Stocks and
bonds are two prevalent kinds of financial assets that businesses can utilize to fund its operations. In the
field of finance, three broad types of financial assets exist- debt, equity, and derivatives.

Bonds: Bond is a debt security, in which the authorized issuer owes the holders a debt and,
depending on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to
repay the principal at a later date, termed maturity. A bond is a formal contract to repay
borrowed money with interest at fixed intervals (ex semiannual, annual, and
sometimes monthly).

Bonds are often sold by corporations or governments to investors in order to help
fund short-term projects. They are a type of legal document detailing the amount of money
an investor loaned a borrower and the length of time it needs to be paid. A bond represents how
much interest is guaranteed to be returned to the investor along with the original loan amount.

Stocks: Stocks are one of the only financial assets that do not have an agreed upon ending
date. Investing in stock means the investor has part ownership of a company and shares in the
companys profits and losses. He or she can keep the stock for any length of time or decide to sell
it to another investor.
A stock (also known as equity or a share) is a portion of the ownership of a
corporation. A share in a corporation gives the owner of the stock a stake in the company and
its profits. If a corporation has issued 100 stocks in total, then each stock represents a 1%
ownership in the company.

Certificate of deposit: A CD is an agreement between an investor and a bank in which
the investor agrees to keep a set amount of money deposited in the bank in exchange
for a guaranteed interest rate. The bank may offer a higher amount of interest payment since
the money is to remain untouched for a set period of time. If the investor withdraws the CD
before the end of the contract terms, he or she will lose out on the interest payments and be
subject to financial penalties.

4. Biological assets: Bearer biological assets are plants or animals which bear agricultural produce for harvest,
such as apple trees grown to produce apples and sheep raised to produce wool.