A for Asset

I am doing a series of posts breaking down IND AS terms. IND AS is no rocket science and this is an attempt to make it a little more friendly and a little less intimidating.

Let's jump right in, shall we ? #ATOZWITHINDAS

 A FOR...... ASSET

What is an asset ?

Asset is anything you make money out of and anything you make money with. Doesn't sound very confusing, right?

Who owns these assets?

Well, you do and I do too. All the companies do too. Our Governments do too.

That iPhone 11 which you got during Amazon sale? Yes, definitely an asset. The car which your dad has been driving for 20 years? An asset only albeit dangerous

 How do we make money out of an asset or money with an asset?

That iPhone 11 which you got at a huge discount, you get money by selling it. That very old car which your father drives, you make money by renting it out.

 What are the types of assets?

The pocket money which your dad gave you yesterday, the extra cinema ticket which you sold to a friend but he is yet to repay you, the pre-booking which you did for your favourite stand-up comic's show.

What do all these have in common? You expect to receive money/services in exchange for these assets very soon, hence all these are current assets. Current assets are all the assets of a that are expected to be sold or used over the next year.

You know how parents start buying properties for their kids in the hope of price appreciation in the future? And did you notice how your neighbour has been driving the same car for 10 years and is planning to continue for 10 years or so? These are non-current assets. Noncurrent assets are long-term investments for which the full value will not be realized within the year.

Are all assets valuable?

No, while we do buy assets with the motive of obtaining value either currently or at the future, not all assets are valuable at all times. Any gadget you buy now will be worthless in 10 years unlike a piece of land which will grow manifold in value over years. Assets can appreciate or depreciate according to their nature. An iPhone 12 will diminish the value of an iPhone 11.

How do I know the value of my asset?

You have 1,000 Rs in your piggybank - That's all it'll ever be worth. Unless another demonetisation makes the notes worth nothing.

You have a plot of land which you'd like to sell - How much was the neighbouring plot sold to a third party buyer? That's the fair value of your plot too.

You have rented out your car to Uber - How many more years and trips do you expect your car to make? The total of rental payments is your car's worth. That's the recoverable value of your car.

Why are assets important?

Assets signify wealth and financial health. Assets improve our opportunities, confidence and economic well-being. For companies, assets influence their decision making, people's perception of the company's profitability and future stability.

Therefore, assets are important not only because they yield financial rewards, but also because they improve an individual's as well as a company's opportunities and stability.

We've just gotten started, so stay tuned and follow this space for the next post in #ATOZWITHINDAS

B FOR............. any guesses?