2. CONTENTS
ASSETS:•Meaning and Definition
•Features, Objectives
•Assets Valuation
•Classification Assets
LIABILITIES:• Meaning and Definition
•Features
•Measurement of Liabilities
•Classification of Liabilities
DIFFENCE BETWEEN ASSETS AND LIABILITY
3. ASSETS:In general meaning asset means all available property of
company.
“Assets are probable future economic benefits obtained or
controlled by a particular equity as a result of past transaction or
events.”
DEFINITION:According to the Institute of Chartered Accountants of India,
the term assets refers to
“Tangible objects or intangible rights owned by an enterprise
and carrying probable future benefits. ”
IN BRIEF:Assets may be defined as a resource of some value acquired at
a specific monetary cost by an enterprise for carrying on its business
operation.
“Assets controlled by a particular enterprise.”
4. ASSETS USED FOR:
• Exchange
• To produce goods and services
• To settle liabilities
• Distribute it to owners
FEATURES OF AN ASSET
• Income Determination
• Determination of Financial Position
•Managerial Decisions
VALUATION OF ASSETS
Methods of measuring the elements of financial statements.
Assets valuation means. “Quantification of assets in term of
monetary units is known as valuation.”
The valuation is the process of assigning meaningful
quantitative monetary amounts.
5. ASSERTS VALUATION METHODS :
• Historical cost.
• Current entry price-Replacement cost.
•Current exit price- Net realizable value.
• Present value of expected cash flows.
1. HISTORICAL COST:• Traditional Methods of cost.
• Recorded at acquisition price.
• Main disadvantage is the value of assets may change over time.
• It fails to recognize again and losses in the periodic occurrence.
• Advantage, it is supporting record of all actual transaction in the
past.
• Without historical data, it is difficult to know that the property has
been utilized property or not.
6. 2.CURRENT ENTRY PRICE – REPLACEMENT COST:• On the date of purchase current entry price and historical cost are
same.
• Current costs represent ten exchange prices for a given date.
• Important while presenting information regarding the effect of
inflation on an enterprise.
3.CURRENT EXIT PRICE:• It is called as net realizable cost
• Amount realizable by selling an assets
• Past price are irrelevant to future actions and future prices are
speculative
7. 4.PRESENT VALUE OF EXPECTED CASH FLOWS: Present value of expected cash flows
3 basic factors are used
•Amount to be received
• Discount factor
•Time periods involved
When expected cash receipts require a waiting period, the present
value is less than the actual amount expected to be received.
Disadvantage is, it depends on probability distributions that are not
verifiable.
Discounted value of cash flows of all separate assets cannot
be added together
8. CLASSIFICATION OF ASSETS 4 MAJOR TYPES OF ASSETS
1.Fixed assets.
2. Investments
3.Intangible assets
4.Current assets
1.FIXED ASSETS:• It is also called as tangible assets.
• Asses are held with the intension of being used for the purpose of
producing goods and services.
• Assts, it has depreciation.
• Example for fixed assets plant & equipment, furniture& machinery
etc..,
9. 2.INVESTMENTS:• Defined as a share & other legal or rights acquired by a firm through
the investment of its fund.
• Investment made by a long term or short term.
3.INTANGIBLE ASSETS:• Assets which have no physical existence.
• Intangible assets like good will, patents, copyright, trademarks,
franchises and licenses.
4.CURRENT ASSETS:• Defined as cash and other assets that are expected to be converted
into cash.
11. ICAI defines “Financial Obligation of an enterprise other than
owner’s fund.”
• Obligation of a particular enterprises
FEATURES OF LIABILITY
•Occurrence of a past transaction or events
• Required future sacrifice or assets
• Obligation of a particular enterprises
• Liabilities and proceeds
•Discontinuance of liability
• Capital and dividend
12. MEASUREMENT OF LIABILITIES
• In conformity with cost principle
• On creation the amount of liability equals market value
• Liabilities valued at
Historical cost
Present value and discounted net asset
• Valuation and recognition is necessary for income distribution and
capital maintenance.
• Required to calculate the financial position
• If not recorded expenses have not been fully recorded under
statement of expenses and over statement of income.
CLASSIFICATION OF LIABILITIES
•Current liabilities
• Long-term liabilities
13. CURRENT LIABILITIES:• Within an accounting period or operating cycle with ever is more.
• Paid from current assets
•types
Liabilities within specific values
Liabilities without specific values whose must estimated
• Current liabilities are
•Accounts payable
• Bills payable
• Interest payable
• Wages and salary payable
• Advance from customer
14. LONGTERM LIABILITIES:• Net due for the accounting or operating period / operating cycle.
• Due after one year
• Often incurred where assets are purchased
• Assets are purchased
• Large term amount are borrowed for replacement, expansion
purposes.
•Ex:- debentures,
Bonds,
Mortgages,
Long term notes payable
• A long-term liability supported by a mortgage is a secured debt.
15. DIFFERENCE BETWEEN ASSETS AND LIABILITIES
BASIS
ASSETS
LIABILITY
MEANING
Assets are property
Or legal rights owned by
an individual or business
to which money value
can be attached.
Liabilities mean the
amount which the
business owes to
outsiders i.e. expecting
the proprietors.
DEPRECIATION
Assets are depreciable as Liabilities are non
well as non-depreciable. depreciable.
DEFINATION BY
FINNY AND MILLER
Assets are the future
economic benefits are
rights which are owned
or controlled by an
organization or
individual.
Liabilities are debt, they
are amount owed
creditors.
16. LOCATION
It is locIt is located left
side of balance sheet.
It is located an right
side of balance sheet.
CLASSIFICATION
Fixed assets
Current assets
Tangible assets
Intangible assets
Wasting assets
Long term liabilities
Current liabilities
EXAMPLE
Money owned by
debtors, stock of goods,
cash, furniture’s,
machine building etc..,
Creditors, bank
overdraft, bills payable,
outstanding liabilities.
17. CONCLUSION:Assets and liabilities are very essential for all type of
business, without assets and liabilities we cannot run
the business.
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