According to the International Accounting Standards Board, an asset is “…a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity”.
So an asset is something of value that a business owns or controls. It is something that:
- Can be spent, such as money held in a bank account or cash held in a till
- Will be converted in time into money, such as customer debts (i.e. trade receivables)
- Will be sold in time, such as inventories (i.e. stock)
- Can be used to help the business generate or save money, such as land that it rents to another business, or equipment that is used to make goods for sale
Current and non-current assets
Accountants split assets into two broad categories of assets
Current assets (such as inventories, trade receivables and cash held at the bank) are short-term in nature and businesses will usually expect to hold these for less than a year.
Non-current assets (also known as “fixed assets”) are long-term in nature. Businesses expect to hold and use these on a continuing basis and for more than a year.
Examples of non-current assets:
- Property, plant and equipment – such as land and machinery
- Investments – such as shares in other companies
- Intangible assets – such as goodwill, brands, research and development (nb. intangible assets are assets that have no physical presence)
The International Accounting Standards Board (i.e. the “IASB”) issues accounting standards that provide guidance and instructions as to how types of transactions should be treated as well as how financial statements should be prepared.
There are several accounting standards that deal with different types of non-current assets. These tell us how they should be:
- Recognised; i.e. how to identify that a non-current asset exists and when it came into existence
- Valued; i.e. how much it should be recorded at when it is first acquired and then how it should be valued over its lifetime
- Presented in a set of accounts
This course will look at the main requirements of IAS 16 Property, plant & equipment but students should be aware that there are several other standards dealing with non-current assets including IAS 36 Impairment of Assets, IAS 38 on Intangible Assets and IFRS 15 Leases.