Characteristics of Assets

Characteristics of Assets

In this article we would explain the characteristics of asset. These characteristics of asset are extracted from the definition of the asset.

Important Characteristics of Assets

Some important characteristics of assets include controlled resource, flow of future economic benefit, present asset, etc. These characteristics of assets have been briefly explained below

1.   Risk & Reward

An Asset is a controlled resource of organization and risks & rewards associated with that resource (asset) belongs to the company or entity.  It is important to remember that in financial accounting, control is linked with sharing of risk and rewards. Thus asset is said to be controlled by the organization, if risks and rewards of asset are shared by the entity or company.

2.   Future Economic Benefit

Second important characteristic of asset is flow of future economic benefit. Asset must have capacity to generate future economic benefit for the organization; otherwise resource cannot be treated as an asset. Thus Flow of future economic benefit is another important qualifying condition for an asset.

3.   No Future Asset

In financial accounting, there is no concept of future asset,a resource is treated as asset, when and only when, the organization exercise control over the asset as a result of past event. Thus future asset cannot be recognized in the books of account as asset and financial statement of the entity  shows only present assets.

4.   Purchase or Gifted

An asset can be created in two ways i.e. Purchase or Gift. Commercial Organizations normally acquire the asset, however, in case of nonprofit organization, many assets are gifted to Non profit organizations by the donor agencies or Government. Both types of asset (acquired or Gifted) must be reflected in book of accounts.

5.   Classification of assets

Assets can be classified by using different criteria like period, tangibility, and function. Thus asset may be classified as current & non current asset, or tangible & non tangible assets. These classification has been briefly explained below 

6.   Tangible & Non Tangible Asset

Asset can be classified on the bases of tangibility.Tangible asset can be touched like plant, machinery, while intangible assets cannot be touched like goodwill and patent rights. both tangible & intangible asset are form part of the financial statements.

7.   Current & Non Current Asset (Fixed Asset)

Assets can also be classified on the bases of period of use .Current asset are expected to generate benefit or consumed within one year, while non current asset will generate benefits for more than one year. Non current asset are also known as fixed assets. The current & non current asset concept has been explained in more details in my other article.

Another base of classification of asset is function of the asset like plant & machinery is used for manufacturing purpose, while vehicles are used for transportation.

List of important characteristics of asset

List of important characteristics of asset is as under

1.    Asset is resource controlled by entity.

2.    Entity is responsible for risk and rewards of asset.

3.    Only present asset is recognized in books of accounts.

4.    Asset may be acquire form market or as gift.