ASSETS

DefinitionofAssets
Any item of economic value owned by an individual or corporation,
especially that which could be converted to cash. Examples are cash, securities,
accounts receivable, inventory, office equipment, real estate, a car, and other
property. On a balance sheet, assets are equal to the sum of liabilities, common
stock, preferred stock, and retained earnings. From an accounting perspective,
assetsaredividedintothefollowingcategories:currentassets(cashandotherliquid
items),longtermassets(realestate,plant,equipment),prepaidanddeferredassets
(expenditures for future costs such as insurance, rent, interest), and intangible
assets(trademarks,patents,copyrights,goodwill).
DefinitionofCurrentAssets
A balance sheet item which equals the sum of cash and cash equivalents,
accountsreceivable,inventory,marketablesecurities,prepaidexpenses,andother
assetsthatcouldbeconvertedtocashinlessthanoneyear.Acompany'screditors
willoftenbeinterestedinhowmuchthatcompanyhasincurrentassets,sincethese
assets can be easily liquidated in case the company goes bankrupt. In addition,
currentassetsareimportanttomostcompaniesasasourceoffundsfordaytoday
operations.
Thissectionofthebalancesheetshowstheassetsabusinessownswhichare
eithercash,cashequivalents,orareexpectedtobeturnedintocashduringthenext
twelvemonths.
Current assets are, therefore, very important to cash flow management and
forecasting,becausetheyaretheassetsthatabusinessusestopayitsbills,repay
borrowings,paydividendsandsoon,
Currentassetsarelistedinorderoftheirliquidityorinotherwords,howeasyitis
toturneachcategoryofcurrentassetintocash.

Themainelementsofcurrentassetsare:
1. Inventories
Inventories (often also called stocks) are the least liquid kind of current asset.
Inventoriesincludeholdingsofrawmaterials,components,finishedproductsready
to sell andalso the cost of workinprogress as it passesthrough the production
process.
Forthebalancesheet,abusinesswillvalueitsinventoriesatcost.Aprofitis
onlyearnedandrecordedonceinventorieshavebeensold.
Not all inventories can eventually be sold. A common problem is stock
obsolescence where inventories have to be sold for less than their cost (or
thrownaway)perhapsbecausetheyaredamagedorcustomersnolongerdemand
them.Fortheseinventories,thebalancesheetvalueshouldbetheamountthatcan
berecoveredifthestockscanfinallybesold.
2. Tradeandotherreceivables
Tradedebtorsareusuallythemainpartofthiscategory.Atradedebtoriscreated
when a customer is allowed to buys goods or services on credit. The sale is
recognisedasrevenue(incomestatement)whenthetransactiontakesplaceandthe
amountowedisaddedtotradedebtorsinthebalancesheet.Atsomestageinthe
future, when the customer settles the invoice, the trade debtor balance converts
intocash.
Mostbusinessesoperatewithareasonablysignificantamountowedbytrade
debtorsatanyonetime.Itisnotunusualforcustomerstotakebetween6090days
topayamountsowed,althoughtheaveragepaymentperiodvariesbyindustry.Of
course some customer debts are not eventually paid the customer becomes
insolvent,leavingthebusinesswithdebtorbalancesthatitcannotrecover.
Whenabusinessisdoubtfulwhetheracustomerwillsettleitsdebtsitneedsto
makeanallowanceforthisinthebalancesheet.Thisisdonebymakingaprovision
forbadanddoubtfuldebtswhicheffectivelyreducesthevalueoftradedebtorsto
thetotalamountthatthebusinessreasonablyexpectstoreceiveinthefuture.

3. Shortterminvestments

Abusiness withpositivecashbalancescaneitherholdtheminthebankor
invest them for short periods perhaps by placing them on shortterm deposit.
Suchinvestmentswouldbeshowninthiscategory.
4. Cashandcashequivalents
Themostliquidformofcurrentassets=theactualcashbalancesthatthebusiness
has!Thebankaccountbalancewouldbethemainiteminthiscategory.

DefinitionofPlantAssets
Plant assets are costs that include all normal and reasonable expenditures
necessary to get the asset in place and ready for its intended use, (Wild, Shaw &
Chippetta, 2009). Some of the costs are land, land improvement, buildings,
machinery, equipment and lump sum purchases. Plant assets are different from
other assets for a couple reasons. One is that they are used in the companies
operations. Another difference is that they are used over several accounting
periods.
Characteristicsofplantassets:

relativelylonglife
heldforuseratherthanforresale
doesnotbecomeincorporatedaspartoftheproduct
tangibleinnature
usedrepeatedlytofurnishservice

Determinationofcost

Measuredbythecurrentcashequivalentpriceofacquiringtheasset,plus
all expenditures necessary to get the asset in the condition and location
thatitistobeused.
Ifconsiderationsotherthancasharegivenfortheassets,thefairmarket
value of such considerations at the time of the transaction is the proper
measureofthecostoftheassetacquired.

cash purchaseinvoice price, freight, installation charges and other costs

involved with the purchase of the asset, discounts, if any, should be
deducted from the cost; discounts not taken should be regarded as
interestcost.

Costexceedingvalue:
Maximum amount to be recorded should not exceed a figure higher than that
whichitcouldbepurchasedforinthemarket.
Valueexceedingcost
Noreasonforwritingtheassetuptoahigheramount.
Landimprovements:
When expenditures for improvements are significant in amount, temporary in
nature,ofvaryinglifespans,thisaccountshouldbeused.
Depreciation

Defined Depreciation is the systematic and rational allocation of the

historicalcostofanasset,lessitssalvagevalue,overitsestimatedusefullife.
Depreciationisanallocationprocessasopposedtoavaluationprocess.
Basic purpose of depreciation is the spreading of the cost of a plant asset
over its useful life and the reflection of this allocated cost in the income
determinationforagivenaccountingperiod.
Totaldepreciation=historicalcostsalvagevalue

MethodsofDepreciation

Straightline
Unitsofproduction
Acceleratedmethods
Sumoftheyearsdigitsmethod
Fixed percentage on a declining balance theoretical; not
usuallyused.
Doubledecliningbalancemethod
SpecialDepreciationmethods
Groupandcompositemethods

RetirementandReplacementmethods
Inventorymethod
AnnuityandSinkingfundmethods

References:

http://people.wku.edu/jack.hall/plant.htm
http://www.investorwords.com/273/asset.html#ixzz1z3dMJLrS
http://wiki.answers.com/Q/What_is_accounting_for_plant_assets#ixzz1z3gvuepg
http://tutor2u.net/business/accounts/current_assets.html