Question

Briefly explain how an Investment satisfies the definition of an asset.

Answer 1

Asset of a company has following features -

1. It is something which can produce value.

2. This has value because this can help generating cash by running normal business operation or can be converted in to cash.

3. This is owned by company or person.

4. This can be tangible or intangible.

5. This has future economic value to Company who owns it.

6. These are used for running the operation of business.

An investment is an amount invested in some asset/business which will give value to company by way of return or capital appreciation. This can be converted in to cash and also generates periodic cash to company as income. This may not give instant return but has economic value to company - investment in subsidiary company to utilize production capacity or gain market share etc. These are done to expand the operation of the company.

Considering the above points investment satisfies definition of asset.