What is asset? Definition, Explanation, Types, Classification, Formula, and Measurement


The definition of assets refers to the resource controlled by the entity as a result of past events and expected to have future economic benefits inflow to the entity. This is what Conceptual Framework said.

The company’s assets, under the Conceptual Framework, could be range from tangible to intangible and from current assets to non-current assets.

Cash on hand, cash in the bank, inventories, property plant and equipment, office building are the best example of the company’s assets.

Cash on hand and cash in the bank is the example of current assets while property, plant and equipment, and the building is the example of noncurrent assets.

In financial statements, assets are recording and presenting by classified into two classifications, current and noncurrent. They are normally present at fair value.


Many types of assets, for example, receivables and property, are associated with legal rights, including the right of ownership.

In determining the existence of an asset, the right of ownership is not essential; thus, for example, property held on a lease is an asset if the entity controls the benefits which are expected to flow from the property.

Although the capacity of an entity to control benefits is usually the result of legal rights, an item may nonetheless satisfy the definition of an asset even when there is no legal control.

For example, know-how obtained from a development activity may meet the definition of an asset when, by keeping that know-how secret, an entity controls the benefits that are expected to flow from it.

The asset of an entity results from past transactions or other past events.

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Entities normally obtain assets by purchasing or producing them, but other transactions or events may generate assets; examples include property received by an entity from the government as part of a programmed to encourage economic growth in an area and the discovery of mineral deposits.

Transactions or events expected to occur in the future do not in themselves give rise to assets; hence, for example, an intention to purchase inventory does not, of itself, meet the definition of an asset.

There is a close association between incurring expenditure and generating assets but the two do not necessarily coincide.

Hence, when an entity incurs expenditure, this may provide evidence that future economic benefits were sought but is not conclusive proof that an item satisfying the definition of an asset has been obtained.

Similarly, the absence of a related expenditure does not preclude an item from satisfying the definition of an asset and thus becoming a candidate for recognition in the balance sheet; for example, items that have been donated to the entity may satisfy their definition.

Two Types of Assets:

Current Assets:

Current Assets refer to types of assets that are expected to be used, consume, or convert into cash for normal operating activities for a period of 12 months from the reporting dates.

In Financial statements, these groups of assets is reported under assets sections and they show the net book value or net present value at the reporting date.

The following are the group of current assets:

  • Cash and Cash Equivalents
  • Advance
  • Receivable
  • Raw material
  • Work In progress
  • Finish Goods
  • Others

Non-Current Assets:

Non-current assets are referred to as long term assets that expected to be used, consume or convert it cash more than twelve months. These groups of assets normally have large value and long useful life.

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The following are a group of non-current assets.

  • Building
  • Land
  • Machinery
  • Warehouse
  • Office Building
  • Computers and Equipment