Question

What are the advantages and disadvantages of a purchase of assets from the perspectives of the buyer and the seller?

Answer 1

Here, we are assuming asset as business assets which are used in business functions. Example: Plants and Machinery.

The advantages and disadvantages of a purchase of assets from the perspectives of the buyer:

Advantages

• Buyer gets the ownership of an asset and can use them as per his/her discretion.
• Buying an asset can be proved advantageous if buyer is able to put an asset to use and start receiving cash flows from asset.
• Buyer can save rents to be paid in case if he / she doesn’t own the asset.
• If asset is being used effectively and efficiently then return on assets can be improved significantly.
• Effective use of assets can be proved useful to generate more revenue for business.

Disadvantages

• If an asset is being purchased at high rate then buyer may block considerable amount of funds in this purchase transaction and may lose benefit of liquidity.
• Along with purchase of asset ownership comes with responsibility to maintain the asset. It needs to be maintained from time to time in order to increase productivity. Quality and quantity of products may get affected if maintenance of an asset is not done on regular basis.
• Increased expenses in form of maintenance cost, repair funds etc. may come in picture which would lead to an outgo of cash from business.

The advantages and disadvantages of a purchase of assets from the perspectives of the seller:

Advantages

• Seller of an asset would be able to generate cash from sale of an asset.
• Would be able to save rents to be paid for storing the asset and if the place is owned by seller then seller can use it for other effective purpose which may lead to higher benefits in business.

Disadvantages

• If seller sells an asset with some defects in the same, then seller may have face repurchase of an asset which may cause not only financial loss but also reputational loss.
• If asset does not perform well as per terms and conditions agreed upon sale of an asset then also seller may face loss of goodwill issue.