Case 2-5 Definition of Assets
Author Note
John G. Antich
School of Business, Liberty University
John G. Antich
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to John G. Antich
Email: [email protected]
ACCT632: A F A T
DVANCED INANCIAL CCOUNTING HEORY
Case 2-5 Definition of Assets
Your company owns a building that is fully paid for. Explain how the building meets the definition of an
asset under each of the following scenarios.
1.Your company is using the building as a plant that is producing automobiles.
2.Your company is not using the building but plans to sell it. Explain how the building meets the
definition of an asset.
3.Your company is not using the building but plans to remodel it so that it can be used as a plant to
produce automobiles.
When a company is using a building which they have fully paid for to produce automobiles, the
building certainly meets the criteria for an asset. The company is reaping the future or now the present
economic benefits from the purchase of the building. Since the building is fully paid off there are fewer
liabilities, such as a mortgage or rent payment which generates a higher profit margin for the
company.
If a building is owned by a company but is lying dormant for whatever reason it is still considered an
asset on the financial statements. Back to the textbook definition, there is probable future economic
benefits which are still to be obtained. In this case, the building is to be sold which will bring sale
According to the Financial Accounting Theory and Analysis textbook, “Assets are probable future
economic benefits obtained or controlled by a particular entity as a result of past transaction or events.”
(Schroeder et al., 2020). It also defines an asset of an entity as, “a present economic resource to which
the entity has a right or other access that others do not have.” The International Financial Reporting
Standards (IFRS) similarly defines an asset as, “a resource controlled by the enterprise as a result of past
events and from which future economic benefits are expected to flow to the enterprise” (Bannister,
2012). The FASB states property, plant, and equipment typically consist of long-lived tangible assets used
to create and distribute an entity's products and services and includes buildings (FASB, ASC 360-10-05-3).
From each of these definitions, we can see that assets are an essential resource to have in a healthy
business.
Case 2-5 Definition of Assets
revenue of the property. The building is still in the ownership of the company from its purchase of
the building therefore the building is still an asset according the definitions above.
God has blessed our nation and our businesses with assets to do the work He has called us to do. We
must therefore be a good steward of God and use those assets wisely and never become so greedy that
we seek better things that we can provide on our own. This is shown in the parable Jesus tells in Luke 12
about the man who tore down his barns to build new ones for everyone to see his wealthy harvest. “And
he said, this will I do: I will pull down my barns, and build greater; and there will I bestow all my fruits
and my goods. And I will say to my soul, Soul, thou hast much goods laid up for many years; take thine
ease, eat, drink, and be merry. But God said unto him, thou fool, this night thy soul shall be required of
thee: then whose shall those things be, which thou hast provided?” (King James Bible, 1769/2017). As
Christians, we should be good stewards in everything God has blessed us with abundantly above all that
we ever need.
In the last scenario, the building is to be renovated, and work within the building will commence.
This certainly meets the definition of an asset. No other business or entity has the right to come into this
building and operate their business from the location. It is an asset solely for the owning company. Once
renovated this property could contribute to the production of automobiles which could keep the
company operating long into the future. Therefore, the building has a high probability of economic
benefit for the company.
Case 2-5 Definition of Assets
References:
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2020). Financial accounting theory and
analysis. Wiley.
Bannister, A. (2012). Review of the Conceptual Framework Definitions of assets and liabilities,
and recognition criteria. media.ifrs.org. http://media.ifrs.org/2013/Projects/Asset-
Liability/Slides.pdf.
FASB (Financial Accounting Standards Board). (2012, October 24). Accounting Standards
Update (ASU) No. 360-10-05-3. Accounting standards codification. Retrieved
from http://asc.fasb.org/
King James Bible. (2020). King James Bible Online. https://www.kingjamesbibleonline.org/ (Original
work published 1769)
