Investment - tangible asset

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Querist : Anonymous

Querist : Anonymous (Querist)

12 August 2010 Is investment in shares a tangible asset since shares are in demat form now.

CMA. Subhash Kumar Jha

CMA. Subhash Kumar Jha (Expert)
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12 August 2010 No its a current asset.

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Querist : Anonymous

Querist : Anonymous (Querist)

12 August 2010 But my question is still to be answered. As per my view, current assets & fixed assets can be tangible or intangible. So i want to know whether investment in shares is a tangible asset ? As per AS 26, it doesn't come in the category of intangible asset. I am confused now.

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CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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12 August 2010 First of all; let's check -

What Does Intangible Asset Mean?

An asset that is not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today's marketplace.

An intangible asset can be classified as either indefinite or definite depending on the specifics of that asset.

A company brand name is considered to be an indefinite asset, as it stays with the company as long as the company continues operations.

However, if a company enters a legal agreement to operate under another company's patent, with no plans of extending the agreement, it would have a limited life and would be classified as a definite asset.

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CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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12 August 2010 As per US GAAP intangible assets are required to be writen off in a period of 5-40 years.

The above concept is not likely to be accepted by IFRS which focuses on valuation at the end of each year.

US GAAP are not in line with the increment in brand valuation. As there is no question of depreciation on land becuase it does not depreciate in size and in value also in long run. Brand valuation is made on the assumption : Longer the period, Higher the valuation.

Websites are treated differently in different countries.

Some countries treat these as tangible because it can be seen whereas other include it as intangible asset.

From the above it is clear that -

The basic concept behind the intangible asset is that ultimately it is diminishing in value if not used.

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CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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12 August 2010 Cash and cash equivalents are tangible assets.

Share could be sold and converted into cash within a week's period; hence it is tangible asset.

D-mat form is just for the sake of safety, suitability and easy exchange at the time of sale.

One should focus on the concept rather than form.

In accountancy we read :

Substance over Form.

Form is not important.

The substance is important.

To conclude :
----------------

Shares are tangible assets.

Why ?

Because you can request the company to rematerialize it and you can get it in physical form again.

Moreover; it has an easily ascertainable cash value.

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Querist : Anonymous

Querist : Anonymous (Querist)

13 August 2010 Thanks for your reply. I am satisfied now. But one more thing, pls tell me that - how would you treat debtors, prepaid expenses as tangible or intanible assets? Give reasns.

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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13 August 2010 There is no such requirement to bifurcate the current assets into tangible or intangible assets.

If one says it is current asset; it means it can be easily liquidated.

So a Current Asset is a tangible asset.

Why ?

The basic concept of intangible started from the term Goodwill. Even if one purchases goodwill; one cannot see it.

Then Patent Rights etc. were included in intangible asset.

I hope in near future; the Patent Right would be treated as Tangible Asset because one has exclusive right to produce an article etc.

Here the word "has" means something ( a certificate )is there which is not there in the case of goodwill.

A goodwill is a mind set of the public.

See the case of Satyam. Despite having good work in its hand; goodwill got aired soon.

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CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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13 August 2010 Why Debtors and prepaid expenses are tangible ?

Because these can be quantified in amount. Different names and heads are there to quantiy.

Debtors are real persons.

Prepaid expenses might have been paid to some authorities which are identifiable.

If an asset which cannot be seen (intangible) how it can be quantified ?