What are assets of a business in the accounting sense of the word? To qualify as an asset of a business in the accounting sense of the word, a property must be owned by that business.
Therefore if Bed Linens Manufacturing Company leases a delivery truck from Quilts & Shams Enterprises, which owns a fleet of such trucks, the rented equipment would not be an asset of Bed Linens Company and would be an asset of Quilts & Shams Enterprises.
A lease is an agreement under which the owner of property permits someone to use it. Thus families who live in an apartment house ordinarily lease their apartments from the owner of the apartment house. Similarly, a weaving machine on lease would not be an asset of the company borrowing it.
All assets must be owned. Also, it must be of value to the business, either because it will be converted into cash, or because it is expected to benefit future operations. The right to collect moneys owed by customers to the business and current inventory of luxury bed ensembles and sheet sets would qualify as assets.
A final requirement as an asset is that the property or property right must have been purchased at a measurable cost. Thus, if Bed Linens Manufacturing Company gradually acquires an excellent reputation because of the consistently high quality of its goods and services, this reputation would not be an asset in the accounting sense of the word.
However, if a company pays a specific amount of money to acquire a reputation, as when it purchases another business to acquire its good name, then the reputation would be classified as an asset in the accounting sense of the word.
Bed Linens Manufacturing Company has operated a bed linens showroom at the same location for twenty years. During that period, it has developed a growing number of steady customers because of its reputation of good quality and services at fair prices. The value of this reputation is not an asset in the accounting sense of the word.
Bed Linens Manufacturing Company has tangible assets with a fair market value of $1M. Comforters and Duvets Retail Store pays $1.2M to purchase Bed Linens Manufacturing Company. Evidently, Comforter and Duvet Retail Store is paying $1M to acquire Bed Linens Manufacturing Company’s tangible assets and $.2M to acquire intangible things such as reputation and favorable location.
If Comforter and Duvet Retail Store has paid $.2M to acquire intangible things, then these intangibles would be classified as an asset on its books. When favorable location or reputation qualifies as an asset, they are listed as the item, goodwill on the balance sheet.
Other items that are treated in the same way as goodwill, i.e., that must be paid for at a measurable cost in order to be listed as assets, are copyrights, patents, licenses, franchises, and trademarks.
To qualify as an asset therefore, a thing must be of value to the business, it must be owned by the business and measurable in terms of money. and sheet sets which comprise the bulk of merchandise inventory of Bed Linens Manufacturing Company, qualify as assets as they are measurable in terms of money, owned by the business, and expected to be converted into cash.
the ecommerce outlet of Vicera Enterprises, Inc., a duly registered corporation, offers a wide variety of high quality bedding and accessories for every bedroom in your house. It carries simple and colorful linens, stylish bedspreads, conventional comforters with self corded edge finish, etc., balmy pillows, beautiful pillow cases and other bed accouterments. We have been providing consumers with durability and comfort at reasonable prices.