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Accounts Paper2. QUESTION #1. PART A Generally speaking, an asset is any
item of property that has monetary value. Assets are shown ...
Submitted by michelleg on October 12, 2006
Category: Business
Words: 1716 | Pages: 7
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QUESTION #1.
PART A
Generally speaking, an asset is any item of property that has monetary value. Assets are shown in the balance sheets of businesses.
One requirement for an asset is that it must be acquired in a transaction. Your mechanical knowledge and skills is not included as an asset to the business due to the fact that firstly, they were not acquired in a specific transaction that your business took part in, such as when you bought your alignment machine.
Another requirement for recognition of an item as an asset is that its cost at the time of its acquisition must be able to be objectively measured. Your mechanical knowledge and skills cannot be objectively measured in dollars and cents. Your valuation of your knowledge or skill is a subjective judgment and another person evaluating the valuation of the same may not agree on your monetary valuation of such skills.
On the basis of these reasons your mechanical knowledge and skills cannot be truly recognised as assets of the business.
PART B
The answer to this question would depend on the purpose or use of the house.
ASSUMPTION 1: The house is not used for business purposes
If the house is not used for business purposes but rather you reside in the house, then the house would not be listed under the company's assets at all because it is not owned by the company although it is owned by you.
According to the Economic entity concept, accounting records are maintained for a specific, identifiable entity separate from its owners. Therefore, in this case, you and your company are considered separate legal entities (for accounting purposes). Thus the house would not be shown in the records of the business at all.
ASSUMPTION 2: The house is used for business purposes
However if the house is used for business purposes then it would have to be recorded in the balance sheet of the business...
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