Assets That Are Not Included In The Balance Sheet

1042 words - 5 pages

Assets that are not included in the Balance Sheet

In general assets are resources owned by the business. Weetman, P. (2006) defined asset as ‘a resource controlled by the entity as result of past events and from which future economic benefits are expected to flow to the entity’. There are two main sorts of assets which are tangible and intangible assets. Tangible assets have physical presence and have monetary value, it can be found as fixed or current asset in the balance sheet. Whereas, intangible assets are the ones that have non-monetary value and have no physical presence. Businesses create intangible assets by their hard effort over time and less often it appears in the balance ...view middle of the document...

So the organization might not know how much it cost them to obtain such workforce and as time goes employees might be obtain more knowledge and experience. So in reality unlike fixed assets their value might appreciate but it again it is difficult for the business to value it in term of money.

Furthermore, according to “international accounting standard board” as a financial statement balance sheet should also meet some qualitative attribute in order to be presentable. These attribute include relevance (materiality) and reliability. About relevance Weetman, P. (2006, p-76) states that “information has the quality of relevance when it influence the economic decisions of users by helping them evaluate past, present or future event”. This implies that if managers were to value their workforce for a particular time, it might not be relevance in the future because it is not predictable whether the employees will continue to perform in the same way in the future as past. Also, information provided in the balance sheet should have a reliable measurement which emphasize that it should be gratis from “material error” and “bias”. This means that if workforce were to be valued as an asset by the director of the business, it may not represent reliable measurement to the user of the balance sheet because everybody has different judgment. The director of an organization might see and value its workforce in such way that might be different from another organization; the user of the balance sheet might not be agree or have different view on the workforce. There are no particular market values to say how much an employee expertise worth.
In addition, if an organization values its workforce and records it in the balance sheet, there is no certainty that it would still be true after sometime because something could demotivate the workforce and lead them be less productive or experienced employee may leave the organization for a better position in another organization. Weetman, P (2006, p35) suggest that “Accounting tries to avoid raising hopes which might subsequently be dashed”. This statement relates to “prudence” convention in accounting which emphasize organization should not overvalue...

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