Asset Finance Management Software

Posted on November 04, 2011 by Admin
Asset Finance Management Software

Asset Finance Management Software

The accounting framework defines assets as “resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.”

Characteristics Of Assets

The above definition of an asset highlights three issues that qualifies a business resource to be treated as an asset and they are:

  • The company must control the resource. It is worth pointing out that is possible to control a resource without ownership of it. An example of a resource that can be controlled without ownership would be a finance lease, therefore if an organisation controls a resource it must treat it as an asset. Evidence of control could include the company’s ability to exclude others from accessing the benefit, or that the company can “exchange it, use it to provide goods or services, exact a price for others’ use of it, use it to settle liabilities, hold it, or perhaps even distribute it to owners.”
  • The resource should be as a result of a past event; for example there should be evidence that a transaction or an event giving rise to the control of the future economic benefits must have occurred. The transaction or event could be a lease agreement or cash payment or a credit agreement to acquire the control of the resource.
  • The company should expect economic benefits to accrue as a result of the control of the resource. The economic benefit can be in the form of cash flows, use in manufacturing or the resource’s ability to be used in providing a service.

If a resource fails to meet the above test it is likely that it should be treated as revenue expenditure; therefore, instead of being disclosed on the balance sheet the resource will form part of the operating and administrative expenses of the business.