Assets

Examples of Assets in the following topics:

• Return on Assets

  • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
  • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
  • But while the asset turnover ratio is focused on the business's sales, return on assets is focused on net income.
  • You calculate the average value of the total assets by adding the value of the business's total assets at the beginning of the period and the value of the business's total assets at the end of the period.
  • $Return\quad on\quad Total\quad Fixed\quad Assets\quad =\quad \frac { Net\quad Income }{ Average\quad of\quad Fixed\quad Assets }$

• Types of Long-Lived Assets

  • The two major asset classes are tangible assets (e.g., buildings and equipment) and intangible assets (e.g. copy rights).
  • There are two major types of long-term assets: tangible and non-tangible.
  • Tangible assets include fixed assets, such as buildings and equipment.
  • Fixed assets include asset land, buildings, machinery, furniture, tools, IT equipment-- e.g. laptops-- and certain limited resources-- e.g. timberland and minerals.
  • They are listed under the asset portion of the balance sheet.

• Defining Long-Lived Assets

  • Assets are economic resources.
  • Simply stated, assets represent value of ownership that can be converted into cash.
  • Assets represent probable present benefit, involving a capacity, solely, or in combination with other assets, to contribute directly or indirectly to future net cash flows, and, in the case of not-for-profit organizations, to provide services;
  • Since non-current, or long-lived, assets are expected to last for longer than one year, accounting treats long-lived assets differently according to their useful life.
  • When assets are expected to contribute to earnings for multiple years, such assets are referred to as long-lived, non-current or long-term assets.

• Loss Restoration

  • The cost model records an asset at its historical cost.
  • If an asset becomes impaired and an impairment loss results, the asset can fall under the revaluation model that allows periodic adjustments to the asset's book value.
  • The revaluation surplus account accounts for increases in asset value, and it also offsets any downward revisions, such as an impairment loss, in asset value.
  • After an asset have been revalued, the asset's depreciation expense must change to reflect the new value.
  • Explain when it would be applicable to revalue an impaired asset

• Asset Turnover Ratio

  • The asset turnover ratio is a measure of how well a business is using all of its assets to generate sales.
  • $Asset\quad Turnover\quad =\frac { Net\quad Sales\quad Revenue }{ Average\quad Total\quad Assets }$
  • The asset turnover ratio is a measure of how well a business is using all of its assets to generate sales.
  • The fixed-asset turnover ratio is calculated in a similar manner, except instead of focusing all of the business's assets, the ratio is calculated using the business's fixed assets.
  • The average fixed asset balance equals the beginning balance of fixed assets for the period plus the ending balance of fixed assets for the period, then dividing by two.

• Basic Components of Asset Valuation

  • Accountants record gifts of plant assets at fair market value to provide information on all assets owned by the company.
  • The reason for not using the book value of the old asset to value the new asset is that the asset being given up is often carried in the accounting records at historical cost.
  • The book value of a fixed asset asset is its recorded cost less accumulated depreciation.
  • An old asset's book value is usually not a valid indication of the new asset's fair market value.
  • Accountants record gifts of plant assets at fair market value to provide information on all assets owned by the company.

• Analyzing Intangible Assets

  • Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured.
  • Intangible assets are created through time and effort, and are identifiable as a separate asset .
  • Intangible assets have either an identifiable or indefinite useful life.
  • An impairment loss is determined by subtracting the asset's fair value from the asset's book or carrying value.
  • Some types of intangible assets are categorized based on whether the asset is acquired from another party or created by the taxpayer.

• Involuntary Conversion

  • The involuntary conversion of an asset occurs when an asset must be disposed of due to unforeseen circumstances, such as theft, casualty, or condemnation.
  • Unlike a voluntary sale, involuntary conversion of assets can involve an asset exchange for monetary or non-monetary assets .
  • Monetary assets consist of cash or cash-equivalent assets.
  • If the value of the new asset exceeds the book value of the old asset, a gain is recognized.
  • The asset received is recorded on the balance sheet at the book value of the asset given up plus any cash paid.

• Valuation of Intangible Assets

  • The valuation of intangible assets are primarily derived from transactions involving intangible assets.
  • Since few sales of intangible assets are observable, benchmarking the value of intangible assets can be difficult.
  • Intangible assets are initially recorded on financial statements at their purchase price, or the cost of acquiring the asset.
  • An acquisition identifies the value one party was willing to pay for an asset while at the same time identifying the value another party was willing to accept to relinquish that asset.
  • Goodwill is an excellent example of how intangible assets are valued.

• Characteristics of Intangible Assets

  • Intangible assets are identifiable non-monetary assets that cannot be seen, touched, or physically measured.
  • Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, and are created through time and effort.
  • Impairment losses are determined by subtracting the asset's market value from the asset's book/carrying value.
  • Under US GAAP, intangible assets are classified into: Purchased vs.
  • Firms initially record intangible assets at cost, however only costs associated with the outright purchase in the acquisition of an intangible asset.