Which Of The Following Statements Is The Best Definition Of An Asset?

The correct option is (a), as Assets are resources owned, managed and controlled by the company from which the company expect to get probable future economic benefits. For example, Cash is a Current Asset which is owned and controlled by the company to get future benefits i.e., cash is used to purchase merchandise for resale purpose in order to earn revenue by selling merchandise to customers on selling price. In case of Prepaid Rent, rent paid in advance to acquire property on rent in order to operate the business and ultimately, earns revenue from profitable activities conducting on rental property.

Assets create value for the company’s business such as Goodwill, which is an Intangible Asset, create the value of the business in the minds of customers in the form business good name and reputation, customer satisfaction, brand identity and awareness, etc.

Assets increase efficiency of operations as when most advanced tools are used to operate the business activities, it can be more productive and more work is done in less time with minimum cost at maximum output. Improved efficiency and lowering costs per units increase sales for the business.

Assets can be used to grow business i.e., new property or land & building, equipment, furniture, etc., are purchased for opening a new branch in other city of the country in which the business is existed and operating. Investing in assets such as investing in real estate are expected to create new streams of cash flows for the business and helps in expanding the business. It creates more profits for the business by selling property to clients at selling price.

Other definitions given in this mcq are not the best and complete definitions of assets as these are enforced and claimed by both external parties (outsiders) and internal parties (owners) of the company’s business as expressed by the Accounting Equation which states that assets are equal to liabilities plus shareholders’ equity.