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Question 6

What do you mean by an asset and what are different types of assets?

Answer

Any valuable thing which has monetary value and owned by a business, is its asset. In other words, assets are the monetary values of the properties or the legal rights that are owned by the business organisations.

 

Fixed Assets− These are those assets that are hold for the long term and increase the profit earning capacity and productive capacity of the business. These assets are not meant for sale, for example, land, building machinery, etc.

 

Current Assets− Assets that can be easily converted into cash or cash equivalents are termed as current assets. These are required to run day to day business activities; for example, cash, debtors, stock, etc.



 

Tangible Assets− Assets that have physical existence, i.e., which can be seen and touched, are tangible assets; for example, car, furniture, building, etc.

 

Intangible Assets− Assets that cannot be seen or touched, i.e. those assets that do not have physical existence, are intangible assets; for example, goodwill, patents, trade mark, etc.

 

Liquid Assets− Assets that are kept either in cash or cash equivalents are regarded as liquid assets. These can be converted into cash in a very short period of time; for example, cash, bank, bills receivable,Flexible Investments etc.

 

Fictitious Assets− These are the heavy revenue expenditures, the benefit of whose can be derived in more than one year. They represent loss or expense that are written off over a period of time, for example, if Research and Development expenditure is Rs 1,00,000 for 5 years, then each year Rs 2,00,000 will be written off.

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