The accounting entry of asset is basically found in the right hand column of the balance sheet. An asset, in terms of financial accountancy means any object, factor or feature of the individual, business organization or company, that has a financial liquidity.
What is an Asset?
In simple layman language, the term asset, is used for any factor of business that has monetary returns. The definition actually is a bit different. An asset can be defined as any abstract factor of the balance sheet, in which money has been invested, or the factor or object has a financial liquidity.
A loan given to some other person is an asset or a machine is an asset. A fully paid liability insurance policy that has not reached its maturity is an asset. Goodwill of the business, which depicts the reputation of the company is an asset, though it does not have a material existence.
There are also some assets, that do not have any market value but instead have a recurring expenditure. Some insurance facilities come under this category. A specific subscription of a magazine will also become an asset even though it does not have any monetary value, when it comes to resale, or liquidation of this asset.
The assets are further divided into two categories, namely fixed assets and current assets.
- Fixed Assets: Fixed assets are basically assets that can be used for a long period of time, and monetary value of these assets does not change in short time spans. Building, machinery and goodwill are some of the prominent examples of fixed assets.
- Current Assets: As against the totally stable nature of the fixed assets, the monetary value of current assets is highly fluctuating, and resale value is quite volatile. The prominent examples of current assets include, short term negotiable instrument and equity shares.
There is another important twist to the tale of assets. There are two prominent characteristics of the fixed assets.
- Tangible Assets: Tangible assets are the assets, that have a physical or material existence. For example: machinery.
- Intangible Assets: Intangible assets are the ones that do not have a material existence, but these assets are seen in the balance sheets. For example: goodwill.
What is a Tangible Fixed Asset?
The definition is a very simple one, "...physical and material assets, that have a long and durable monetary life, are known as tangible fixed assets...". In a layman's language, we often refer to these kinds of assets as 'property'. Basically the fixed assets are the earliest know type of assets to man.
Features of Tangible Fixed Assets
The following are some of the prominent features of such assets:
- These assets are a valid ground for tax deductions as these assets are subject to heavy depreciation or amortization.
- The monetary value of these assets is such that they do not get depleted within a time span of few years. According to most of the accounting standards, fixed assets should have a minimum life span of at least 12 months
- Tangible assets have a comparatively high resale value.
- The purchase of such assets, is a valid ground for tax deduction and exemption of duties, in most of the jurisdictions.
- A tangible fixed asset can be easily used as collateral to obtain secured loans.