Thursday, April 25, 2019

Nature of assets

Legal title is not the only criterion for classifying certain items in an accounting term as an asset; for example, someone buys an item at the time of the hire purchase, but does not become the owner of the item until the full purchase price is paid. Despite this, the project is still recorded as an asset along with the corresponding obligations. Similarly, although the lessee has never been the owner of the leased item, he can record the item as an asset, provided that the corresponding obligation is also displayed.

In the accounting sense, "ownership" usually means "legitimate ownership", but there are exceptions; the benefits of tangible or intangible objects or value rights, as well as the right to possess and use, also constitute the assets of the interested parties.

If a person is the owner of the value or economic benefit generated by a particular source, then the source is the asset of the person concerned and he is the economic owner, although he may not be the legal owner. In this case, the accounting substance should take precedence over the legal form to determine the most appropriate accounting procedure.

The main function of accounting is to determine the profit. However, the generation of income requires capital investment in order to provide the facilities needed for continuous and indefinite operation of the enterprise.

Historically, the cost that was not incurred as a cost allocation over a period of time was deferred. From an accounting perspective, they represent an asset. If these costs can be recovered within one year, they are current assets and they are fixed assets if they can be recovered over a longer period of time.

This asset classification is critical to determining profit and showing the company's position at a particular time, in other words, the nature of the composition and obligations of the asset. The purpose of obtaining fixed assets is to use them to generate income. They are not obtained for resale. Fixed assets must produce goods that generate income, in other words, they must be used for commercial operations.

The largest fixed asset classes in accounting are tangible, such as buildings, machinery and vehicles. Land that is not depreciated or depleted due to use, because it has never been "consumed" and is also considered a tangible fixed asset. These assets need to be depreciated when assessing buildings, machines and vehicles, and must be shared as costs each year. Natural resources such as mines, oil and gas wells, and plantations that are also likely to be depleted are also considered tangible fixed assets.

Another group of assets are intangible fixed assets such as patents, copyrights, trademarks and goodwill. Deferred charges and debits [such as the company's initial expenses] are also considered intangible fixed assets in accounting.

Finally, what is ultimately considered an asset is an external asset, also known as an investment. These include fixed-income investments in fixed income, investments in common stocks of other companies, miscellaneous investments in pension funds, housing plans and insurance policies, and finally investment properties.




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