Differences between Real Assets and Perceived Assets

We all know what assets are or what accounting defines as assets which are anything and everything that a business owns that has monetary value and is used to generate income and is okay and right.

We have however discovered that some business has “things” categorized as assets in their book that are actually not business assets and some things that are actually assets but are expensed and not considered as assets and it is because of this article is happening today, you the trend by now our publications are mostly a solution to a problem we have observed or an explanation to a misconception we have observed.

An item is not considered an asset because of how expensive it cost and on the other hand, another one is not considered an expense because of how “not expensive” it is.

In our journey as we help SMEs have their books in order, one of the things that we are keen on developing is the asset register for the organization as we help them set up the accounting structure for the ones that have none and review for those that already have one because this is one way that the organization can keep measuring its growth year after year, it is in this endeavor that we have noted that to some organization an item is considered an asset because of its high-value cost and another is expensed as an operating cost because of it perceived low cost.

As the accounting definition goes an asset is any item that the company uses in its generation of income, there are some cases in the SMEs industry that the structure isn’t well laid out and the business owners are still figuring things out, which leads to some of the director’s assets being used for the generation of the business income and hence these assets are perceived as assets of the business, however, these are not assets to the business and they cannot be acknowledged as so, this can only be accounted for in the directors’ account and can be captured neither in the asset register nor in the financial statements as organization’s assets unless the organization is a sole proprietor where in such a case there is no separation between the business and the owner.

But once the SME is registered as a private company, it becomes a legal entity on its own and hence it has a life of its own that is the whole point as to why KRA acknowledges it with its own PIN, and it doesn’t matter how long the assets are used for the sole purpose of the business as long they are not owned by the business they can’t be captured as organizations assets. (in the publication which is on the 16^th we’ll actually look into the benefits of either a sole proprietor or a limited company)

On the flip side, there is that inexpensive office equipment that looks like they should just be expensed because they don’t seem to have much value to be considered as assets but they are actually assets and hence the reason why in the asset register one has to have the classes clearly indicating the subclasses of the assets, i.e operating assets or non-operating assets, current assets or fixed assets, tangible assets or intangible assets, this doesn’t, however, mean that an asset can only be this or that, take an example of a building this a fixed tangible asset.

What an asset register does is clearly capture each asset in its category, and that ensures that the organization is able to understand what it has that it can optimize on and what it needs to add so that is able to generate or optimize its revenue.

With an asset register developed and assets are clearly categorized, depreciation or amortization rate considered, and for it to work more effectively, frequent monitoring and updating is key, this is to take care of any additions and or disposals.

An asset register should clearly have at least the following details relating to each asset that is captured:

• Unique identification number
• Date the asset was acquired
• Location of the asset
• Brief description of the details of the asset
• Classification of the asset
• Cost of the asset
• The deprecation or amortization rate for the asset
• The netbook value of the asset
• Age of the asset

NB: An asset register is customized to the unique operations of the organization and hence the above can be customized to suit the organization.

It is important that an organization knows its asset holding and can clearly classify what it owns as this will solve false assumptions of ownership and also solve the miss-categorization of items, another major benefit of an asset register is that it helps safeguard assets, (this is possible because the organizations what it has and monitoring mechanisms are in place that acts as a safeguard against loss or misuse).

If you’re reading this and you are wondering where to start with the development of your organization asset register worry no more, get in touch with us, you can leave a comment below indicating that you’d appreciate guidance on the subject or write an email to us using info@mbuguaandassociates.com or leave a comment on any of the social media and we’ll get in touch with you.

MA Financial Services Consultants