The learning objectives in this article are to consider:

Assets: Definition

Assets are the properties, things, and receivables with certain values that are owned by a business.

Examples

Examples of assets include cash, debtors, stock, accounts receivable, prepaid expenses, land, buildings, plant, machinery, vehicles, furniture, fixtures, goodwill, patents, copyrights, trademarks, patterns, and deferred costs.

List of Assets

Fixed Assets

    1. Tangible Assets
      • Land
      • Buildings
      • Plant
      • Machinery
      • Motor vehicles
      • Furniture
      • Fixtures and fittings
      • Long-term investments
      • Mines
      • Forests
    2. Intangible Assets
      • Goodwill
      • Patents
      • Trademarks
      • Copyrights

Current Assets

  • Cash in hand
  • Cash at bank
  • Marketable securities
  • Sundry debtors
  • Bills receivable
  • Stock
  • Prepaid expenses
  • Accrued income

Fictitious Assets

  • Preliminary expenses
  • Discount on issue of shares
  • Discount on issue of debentures
  • Loss on issue of shares
  • Loss on issue of debentures
  • Technical knowhow

Classification of Assets

Classification of Assets

1. Real Assets

Assets with a market value are called real assets.

Examples

Cash, debtors, stock, accounts receivable, prepaid expenses, land, buildings, furniture, goodwill, patents, copyrights, trademarks, and patterns.

(A) Fixed Assets

Assets with a long life or assets of a permanent nature, with which the business is carried on, are called fixed assets.

Examples

Land, buildings, plant, machinery, motor vehicles, furniture, fixtures, and fittings.

The following are the main types of fixed assets:

(i) Tangible Assets

Assets that have physical existence are called tangible assets. Examples include cash, land, buildings, furniture, plant, and machinery. There are two types of tangible assets:

  • Wasting Assets
    Assets whose value gradually declines due to usage, finally being exhausted completely (e.g., mines, forests).
  • Non-Wasting Assets
    Assets whose value gradually declines due to usage, but which are not exhausted completely (e.g., vehicles).

(ii) Intangible Assets
Assets with no physical existence are called intangible assets. Examples include trademarks, copyrights, patents, and goodwill.

(B) Current Assets

Assets that are already in the form of cash, or which can be converted into cash quickly, are known as current assets.

Examples

Cash in hand, cash at bank, accounts receivable, stock, prepaid expenses.

There are two main types of current assets:

  • Liquid Assets or Quick Assets
    All current assets, excluding stock/inventory and prepaid expenses, are liquid assets, which means they are already in the form of cash or can be converted into cash quickly (e.g., cash in hand, cash at bank, and accounts receivable).
  • Floating Assets
    Assets that are bought, manufactured, or held for selling purposes are known as floating assets. Examples of floating assets include stocks of raw materials and finished goods.

2. Fictitious Assets

Fictitious assets are assets with no market value.

Examples

Deferred costs such as preliminary expenses, loss on issue of shares, discount on issue of shares, loss on issue of debentures, and discount on issue of debentures.

Other Types of Assets

  1. Contingent Assets
    Assets that come into existence after a particular event happens are called contingent assets. Actually, these are not assets at present but become assets in the future (i.e., upon the happening of a certain event).
    Example: Suppose a legal suit is filed against someone for damages. This is a contingent asset because it may come into existence if the court grants a favorable decision.
  2. Outstanding Assets
    Income earned but not received (accrued income) and expenses paid in advance are called outstanding assets.
    Examples: Prepaid insurance, accrued interest on investment

Learning from the experts

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True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.