Can anyone help me out (Capital & Assets)

Can anyone help me out (Capital & Assets) - Printable Version

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Can anyone help me out (Capital & Assets) - problim creater - 11-28-2004

Hi,

I have big confession among capital and assets. The money we invest in our business called Capital. If we purchase a machinery to use in our business that is Asset, here I have confession why we donât call asset as a capital because we invest that money in business???????

second question is regarding depreciation. As for as i know there are two method of depreciation one called straight line method and other called reducing balance method. can anybody explain me where reducing balance method and straight balance method should be used.

Finally BIG BIG BIG confession,
might be you all guys know about the Jordan. she came in show bz about 4 years ago and she could not become famous that time due to having small br***t. then she decided to go for surgery to increase the size of her br***t. she spend around Â£30000 to increase the size of her ****** then she went again in to show bz and now she is most famous female due to her big ******. My question, the money which she spends on her will b accounting as Capital, asset or expense. of course she spend that money for business purposes therefore that money should b accountable and if the money is asset then what would be the depreciation method for that.

- Augustus - 11-28-2004

Hi Problem creater..... here the answer to ur problem
1.
We treat capital as a liability because it's a liability of the business but if u see it on the other side( let's suppose u invest the money in the business) then it will be ur asset but it will be a business's liability...Hope it will work out.
2.
Who told you that there are only two methods of depreciation. There are so many methods like machine hour rate, sinking fund method, annunity method and many more, but most commonly used are straight line and reducing balance method.
3.
As far as this question is concerned .... it's very interesting issue but i think it won't be capitalised as it doesn't really increase the capacity of the machine (celerity)). It will just maintain her source of ince.

I m also waiting for someone's comments to know whether my answer is right or not.

- the_farhan - 11-28-2004


salaam all,

(1)

mr. problim creater, as v all know the balance sheet equation
ASSETS = DEBT(liabilities) + EQUITY(capital)
assets r the main "resources" of the company, the main operating part, the real things tht generate income n profits for company. they r the core factor for survival of the firm. on the other hand of this equation, debts n equity r the "sources" of the resources ie assets. note the word 'resources' for assets n 'sources' for debts n equity. it makes the all difference. debt n equity explain how the assets are financed, by our own money (capital) or by borrowed money(debts). the values n income generated by the assets r indifferent of the way they r financed ____ by debts or by equity. the abillity of the company to generate income n profits is determined by its assets n NOT by its debts or equity, they r just the sources to purchase the assets.

(2)

i dont remember exactly abt the reducing balance, but these two r not the only methods of depreciation. other very popular ones r MACRS(improved version of ACRS), units-of-production, etc etc. however, according to a survey conducted in USA, more tht 90% companies use straight-line method.

(3)

this problem appears to b more of FINANCE thn tht of ACCOUNTING. the amount is not an expense bcoz it has benefitted her for more thn one year. in accounting, i suggest tht it b treated as prepaid amount (asset nature) tht shall benefit for many yrs.

however, as per theories of finance, it is very much like probs of investment n capital budgeting, where company takes decisions for increasing the market value of company. her spending the money has generated the same effect ie increased her popularity ie martket value.

plz mind one thing, tht in finance, decisions r taken not just on the basis of accounting profits/losses or in terms of outflow or inflow of money, but on the basis of probable cashflows tht the decisions will generate in future. so, although she spent money (cash expence), but it is justified bcoz of increase in her income, popularity, fame, n over all value.



FARHAN

live, n let live ...

- Mr. Whappaaaa - 11-28-2004

hi PROBLEM CREATOR

suggested replies are as follows

1 yaar if u differentiate b/w asset & capital then you can easily understand the real meaning of both words ASSETS are those resources in which an enterprise gains an economic benefit in future which is necessary to run for the business where as CAPITAL is the investment of the enterprice which is necessary for the development of business.

2 Interesting. If u talking about where the reducing balance method is appropriate and where straight line is adequate then i like to say that " where the asset's life are not compatible with the asset & there are a huge amount of uncertainities between the asset and its life then we use REDUCING BALANCE METHOD like a computer software because we do not know about the assets expected life then how much time period will be taken to finish the life of assets but reducing balance method are dependent on the appropriate percentage, means we must have to decide these percentage of assets according to the relevent environment and other factors which may influence the assets life. As far as STRAIGHT line is concerned we use that method where we know about the real expected life of assets like BUILDING we know that building have a useful economic life is 50 yrs(according to the situation of building,but 50 is ideal) ,similarly MAJOR PLANTS of assets we know that the expected life of that plant is 20 yrs.

3 I think its investmens like CAPITAL in nature.
but yaar PROBLEM CREATOR this is publicly available forum. So plz you should avoid this kind of discussion.

ASIF ALI

- sajjad_dar2000 - 11-30-2004

Hi problim creater

its very easy to understand diffrence between capital and assets, conside following-

CAPITAL
in accounting, capital is an investment of money (funds)with the intention of earning as return. Capital will also include proprietor's initial capital, introduced as cash and perhaps equipment or other assets.

ASSETS
an asset is something valuable which a business owns or has the use of. assets are rights or other access to future economic benifit as a result of past transections or events. eg a machine is an asset because it gives rights to future economic benifit (machine will be used in the business to make products and earn revenue.

In my own word(<img src=icon_smile_big.gif border=0 align=middle>) capital is a money invested by the owner and asset purchased from capital. therefore asset is liabilty of business ans look how its work in entries.

Assume Amjid want to start a business and he opens a business bank account. he puts Â£2500 in his business bank account now Â£2500 is capital.

CAPITL 2500 CR
CASH 2500 DR

and than he purchase a machinary (asset) for Â£1500

CAPITL 2500 CR
CASH 100 DR
ASSET (M) 1500 DR

here you can see asset has been purchased from capital and it didnt effect the capital but reduced the cash

I add one more sentence that capital also called ownership intrest (statment of principal) ans ASSETs less LIABILITIES = Ownership intrest

2)STRAIGHT LINE METHOD
where an asset gives you equal benifit/production every year during its economic life, we use straight line method.

where an asset gives you more benifit/production in staring years and less in later years then we use reducing balance method

3) as for as Jordon is concearn, i dont think that we can use any kind of accounting treatment for her.

Sajjad Dar

- problim creater - 11-30-2004

Thanks to all you guys who repond me

- label - 11-30-2004

Does the institute allow you to communicate with the outside world so early in your rehabilitation processs?

Don't bother responding, I'm not reading messages created by you!

--------------------------
See Ya
-)
Visit www.accountancystudents.co.uk

- problim creater - 12-01-2004

<BLOCKQUOTE id=quote>quote<hr height=1 noshade id=quote>
Does the institute allow you to communicate with the outside world so early in your rehabilitation processs?

<hr height=1 noshade id=quote></BLOCKQUOTE id=quote>

Yes we are allowed and that question was related to accountancy. If you dont want to reply my post than dont reply, did i force to reply?????????????????????????????????????//

bye.....have a nice day

Problem Creater