Question

What is an asset

Answer 1

Asset - Meaning:

When an expenditure is incurred by a firm, it must be considered as an expense for the period in which such asset is purchased or considered as a capital expenditure based on the nature of such expenditure.

If benefits from an expenditure is not expected to flow for more than one accounting year, it shall be considered as expense for the year in which such expense is icurred.

If benefits from an expenditure is expected to flow for more than one accounting year, expenditure shall be considered as asset. When an asset is recorded by a firm, it must be reported at cost on the balance sheet date. As asset is expected to have useful life of more than one accounting year and is used to generate firm's revenue during its useful life, cost of the asset shall be amortized over its useful life by way of periodical depreciation expense calculated using any of the methods such as straight-line method or double-declining balance method or units of production method or sum of digits of year method, etc.