Characteristics of Asset

Characteristics of Assets

Characteristics of asset can be explained in term of risk & rewards, flow of future economic benefit, acquisition of asset etc. These characteristics have been briefly explained in this article

Important Characteristics of Assets

Some important characteristics of assets have been discussed as under;

1.   Controlled Resource

First important characteristic of asset is risk & reward associated with an asset. The risk and reward of the asset will flow to the controlling organization. It is important to remember that control of asset and risk & reward are closely linked. 

It is important to remember that the control and title of an asset are two separate things and control is not necessarily linked to title. for example under finance lease the asset are controlled by the entity without the transfer of title.

2.   Flow of Economic benefit

Another important characteristic of asset is flow of economic benefit in the future. A resource which does not possess the capacity to generate future benefits for the organization, then it cannot be treated as an asset. Future benefit flow/generation is an important qualifying condition for an asset. 

For example a machinery purchased, but could not be used for technically reasons, then this machinery would not be recorded as asset.

3.   Existing Assets

Another important characteristic of asset is its present existence. Thus an asset cannot be recognized in the books of accounts on the bases of future plan for acquiring an asset. Thus there is no recognition for future assets in the books of accounts.

4.   Acquisition of Asset:

An asset primarily can be acquired or created in two ways, either by Purchasing from the market or through Gift. Most of the time asset is acquired from the market especially in case of commercial organization, however, in case of nonprofit organization asset may be gifted by Government or donor agencies.

5.   Current & Non Current Asset:

Current & non current asset is an important classification methodology. Current Assets is supposed to generate /consumed or realized within one year, while Non current asset will generate benefit for long time.

Examples of Non current asset are inventories, receivables, cash, while examples of non current assets are machinery, plant, furniture, vehicles.

6.   Tangible & Non Tangible Asset:

Another important classification of assets is on the bases of tangibility. Tangible asset has physical existence like plant & machinery, furniture etc. while intangibly asset does not have physical existence.

List of important characteristics of asset

List of important characteristics of asset are listed below

1.    Asset is a controlled resource.

2.    Control of asset is defined in term of risk & reward flow.

3.    Future asset are not recognized in books of accounts.

4.    Asset may be classified as current & non Current assets.