Definitions

[Saumya Jain]

Hi everyone.
I just started going through CB-1 material. In the first chapter we come across real assets. Our study material says real assets are both tangible and intangible assets. But according to various books and sites on googles real assets are only physical asset. It would be great if someone could clarify this.
Thanks in advance

 

[Calm]

Hi everyone.
I just started going through CB-1 material. In the first chapter we come across real assets. Our study material says real assets are both tangible and intangible assets. But according to various books and sites on googles real assets are only physical asset. It would be great if someone could clarify this.
Thanks in advance

I remember this Q&A from one of my modules in NTU:

(The question) A characteristic of a PPE is that it is tangible. However, are there exceptions? For example, for computer software (intangible) that is maybe bought and used to provide goods and services, can I classify it as a PPE even though it is intangible? Google says yes, but I am unsure if we can classify intangible assets as PPE.

(Prof's response) Please refer to FRS 38:4 “....computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.”

I wonder if this is how the "intangible asset" becomes a real asset.

 

[Hanna Hohner]

There are various ways to classify assets. Simply speaking, a company employs real assets in order to use it in its production process (here, production also refers to providing services), whereas financial assets are basically claims on future cashflows, e.g. bonds, shares, treasury bills, futures etc.

So, this is just one way of categorizing assets, and among the variuos sub-disciplines of economics, it is usually corporate finance that uses this kind of categorization. Another major subdiscipline, accounting, categorizes assets by their nature, i.e. whether they serve the business in the long-run (non-current assets) or are likely to be converted into cash during the normal course of business (current assets). You will find real assets among non-current assets (e.g. machinery, software) and current assets (e.g. raw materials) as well, and similarly, you will find financial assets among non-current assets (e.g. shareholding in subsidiaries) and also current assets (e.g. a long position in a call option with maturity 3 months).

 

[Saumya Jain]

I remember this Q&A from one of my modules in NTU:

(The question) A characteristic of a PPE is that it is tangible. However, are there exceptions? For example, for computer software (intangible) that is maybe bought and used to provide goods and services, can I classify it as a PPE even though it is intangible? Google says yes, but I am unsure if we can classify intangible assets as PPE.

(Prof's response) Please refer to FRS 38:4 “....computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.”

I wonder if this is how the "intangible asset" becomes a real asset.

Hey Calm
Thanks you for your response.
So what we can see is how integral is that 'intangible asset' is to the business it is being utilised in.

 

[Colin McKee]

Yes - the term "real asset" usually means something that is not a "financial asset" such as a bond or a share. It is not a term that is frequently used in past papers. Usually in CB1, assets are categorised as "non-current" or "current", where current assets are short term assets that are consumed as part of the businesses production, and non-current assets are not consumed and are usually longer term. Within non-current assets we have tangible, intangible and financial, where the latter may be called "investments".