Accountancy/Assets

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An asset is something which is controlled by an entity and will generate future economic benefit as a result of past events.

Evidence of the existence of an asset is that an entity is exposed to the risks, as well as the rewards of ownership.

Importantly, the definition does not take into account legal ownership, but instead reflects substance. For example an asset leased under a contract which confers the significant risks and rewards on the lessee, is capitalized by the lessee despite the fact that legal ownership resides with the lessor.

Assets can be disclosed as current or non-current. A current asset is an asset that forms part of the operating cycle of an entity e.g inventory (stock) or trade receivables (trade debtors). Alternatively, a current asset is an item which is not a component of operating activity, but which has a maturity of less than 12 months. Cash and cash equivalents are always classed as current assets.

Non-current assets are assets that do not fall under the category of current assets,