Describe the characteristics of major financial assets Answer Major financial assets include certificates of deposit, bonds, treasury notes and bills, and IRAs. Certificates of deposit are loans investors make to financial institutions.
Full Answer
What are the characteristics of assets in financial accounting?
Characteristics of Assets 3. Objectives of Valuation 4. Types. Financial accounting has basic elements like assets, liabilities, owners’ equity, revenue, expenses and net income (or net loss) which are related to the economic resources, economic obligations, residual interest and changes in them.
What are other financial assets?
Other Financial Assets means certain receivables, to the extent assignable, from manufacturer incentive programs, prepaid items and unamortized assets having determinable future value, all as listed in the Purchase Price Certificate to be delivered at Closing pursuant to Section 3.3.
What are the characteristics of tangible assets?
Tangible assets are that are used in the operations of a business. They provide long-term financial benefits, have a useful life of more than one year, and are classified as property, plant, and equipment (PP&E) on the balance sheet. The key characteristics of a fixed asset are listed below:
What are the key characteristics of a fixed asset?
The key characteristics of a fixed asset are listed below: 1. They have a useful life of more than one year PP&E (Property, Plant and Equipment) PP&E (Property, Plant, and Equipment) is one of the core non-current assets found on the balance sheet. PP&E is impacted by Capex, . 2. They can be depreciated
What are the major characteristics of financial assets?
A financial asset is a liquid asset that represents—and derives value from—a claim of ownership of an entity or contractual rights to future payments from an entity. A financial asset's worth may be based on an underlying tangible or real asset, but market supply and demand influence its value as well.
What are the major types of financial assets?
a contractual claim to something of value; modern economies have four main types of financial assets: bank deposits, stocks, bonds, and loans.
What are characteristics of financial instruments?
Financial instruments obligate one party (person, company, or government) to transfer something to another party. Financial instruments specify payment will be made at some future date. Financial instruments specify certain conditions under which a payment will be made.
What are the characteristics of an asset in accounting?
Assets have the following main characteristics:(1) Future Economic Benefits: ... (2) Control by a Particular Enterprise: ... (3) Occurrence of a Past Transaction or Event: ... (1) Income Determination: ... (2) Determination of Financial Position: ... (3) Managerial Decisions: ... (1) Fixed Assets: ... (2) Investments:More items...
What are the four classes of financial assets?
Historically, there have been three primary asset classes, but today financial professionals generally agree that there are four broad classes of assets:Equities (stocks)Fixed-income and debt (bonds)Money market and cash equivalents.Real estate and tangible assets.
What are the three categories of financial assets?
Money, stocks and bonds are the main types of financial assets. Each is something you can own, and each has some amount of financial value.
What are the main characteristics that can be used to classify financial markets?
The financial market can be classified into three different forms.By Nature of Claim.By Maturity of Claim.By Timing of Delivery.By Organizational Structure.
Which are the characteristics of financial instruments Mcq?
liquidity and standardization. Answer» c. standardization and information communication.
What are the 9 major financial institutions?
The major categories of financial institutions include central banks, retail and commercial banks, internet banks, credit unions, savings, and loans associations, investment banks, investment companies, brokerage firms, insurance companies, and mortgage companies.
What is other asset?
Other assets is a grouping of accounts that is listed as a separate line item in the assets section of the balance sheet. This line item contains minor assets that do not naturally fit into any of the main asset categories, such as current assets or fixed assets.
What are three characteristics of fixed assets?
Fixed assets refer to long-term tangible assets that are used in the operations of a business. They provide long-term financial benefits, have a useful life of more than one year, and are classified as property, plant, and equipment (PP&E) on the balance sheet.
What are the 3 main characteristics of liabilities?
The three main characteristics of liabilities are that they are a current obligation which obligates an entity, settlement of an obligation will result in the decrease of assets, and they are a form of borrowings.
What are the two basic types of financial assets?
Lesson Summary. Financial assets are a category of company assets that are non-physical and derive their value from a contractual or agreed on value. They are one of three types of assets that companies put on their balance sheet. The other two types are tangible and intangible.
What are the types of assets?
What are the Main Types of Assets?Cash and cash equivalents.Accounts Receivable.Inventory.Investments.PPE (Property, Plant, and Equipment)Vehicles.Furniture.Patents (intangible asset)
Which is a financial asset?
A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such as commodities or real estate.
What are financial assets and explain any six financial assets?
A financial asset is a liquid asset that derives its value from any contractual claim. Major types include Certificates of Deposit, bonds, stocks, Cash or the Cash Equivalent, Loans & Receivables, Bank Deposits, derivatives, etc.
What are some examples of assets?
Stocks, land, buildings, fixed assets , and other types of owned property are examples of assets. read more. and any income generated on the original amount of the investment. At the same time, the fair value of the units may diminish, which is a loss to the unit holder.
How do mutual funds work?
Mutual funds collect money from small investors and invest such collected money in financial markets, including equity market, commodity, and debt market. The mutual fund holder receives units in exchange for their investment, which is bought and sold in the market based on the market price. The return on investment is simply the sum of its capital appreciation#N#Capital Appreciation Capital appreciation refers to an increase in the market value of assets relative to their purchase price over a specified time period. Stocks, land, buildings, fixed assets, and other types of owned property are examples of assets. read more#N#and any income generated on the original amount of the investment. At the same time, the fair value of the units may diminish, which is a loss to the unit holder.
What is accounts receivable?
Accounts Receivable Accounts Receivable Accounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. read more / Notes Receivables
What is cash equivalent?
Cash equivalents are highly liquid assets. Liquid Assets Liquid Assets are the business assets that can be converted into cash within a short period, such as cash, marketable securities, and money market instruments. They are recorded on the asset side of the company's balance sheet. read more.
What is mutual fund?
Mutual Funds A mutual fund is an investment fund that investors professionally manage by pooling money from multiple investors to initiate investment in securities individually held to provide greater diversification, long term gains and lower level of risks. read more.
What is consolidated financial statement?
Consolidated Financial Statements Consolidated Financial Statements are the financial statements of the overall group, which include all three key financial statements – income statement, cash flow statement, and balance sheet – and represent the sum total of its parents and all of its subsidiaries. read more. .
What is equity shareholder?
Equity Shareholder A shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares. read more.
What are financial assets?
The financial assets can be defined as an investment asset whose value is derived from a contractual claim of what they represent. These are liquid assets as the economic resources or ownership can be converted into something of value, such as cash. These are also referred to as financial instruments or securities. They are widely used to finance real estate and ownership of tangible assets Tangible Assets Any physical assets owned by a firm that can be quantified with reasonable ease and are used to carry out its business activities are defined as tangible assets. For example, a company's land, as well as any structures erected on it, furniture, machinery, and equipment. read more.
What are financial assets? What are some examples?
This type of financial asset Type Of Financial Asset Financial assets are investment assets that derive their value from a contractual claim of what they represent. Cash and cash equivalents, accounts receivable, fixed deposits, equity shares, debentures/bonds, preference shares, mutual funds, interests in subsidiaries, associates, and joint ventures, insurance contracts, rights and obligations under leases, Share-Based Payments, Derivatives, and Employee Benefit Plans are all examples of financial assets. read more is the cash or equivalent Cash Or Equivalent Cash and Cash Equivalents are assets that are short-term and highly liquid investments that can be readily converted into cash and have a low risk of price fluctuation. Cash and paper money, US Treasury bills, undeposited receipts, and Money Market funds are its examples. They are normally found as a line item on the top of the balance sheet asset. read more reserved with the organization.
How is the value of an asset determined?
The value of this asset is determined by the demand and supply of such assets in the market.
Why is it important to keep a mix of different asset types?
Since each type of asset has some reward & risk associated with it , it’s always advisable to keep a mix of different asset types to have an optimal portfolio. It helps in the proper functioning of the organization without any dearth of assets.
What are derivatives in finance?
Derivatives. Derivatives Derivatives in finance are financial instruments that derive their value from the value of the underlying asset. The underlying asset can be bonds, stocks, currency, commodities, etc. The four types of derivatives are - Option contracts, Future derivatives contracts, Swaps, Forward derivative contracts. read more.
What is cash flow?
These all can be classified in different categories according to the features of the cash flow Cash Flow Cash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more associated with them.
Why do bonds default?
A bond can default as issuers may fail to pay back the par value of a bond.
What are the different types of financial assets?
Types of Financial Assets. The various types of assets are as follows: 1. Cash and the Cash Equivalents. These are the financial assets that are highly liquid current assets of the business such as the cash balance of the business, balance in the bank accounts of the business, cheques received from the parties but are yet to be cleared by the bank, ...
What are financial assets?
Financial assets are the intangible assets i.e., they cannot be physically touched but are the liquid assets whose values are derived from the contractual claims i.e., a contract is made between two parties where one entity that invests its money will get some contractual right to receive returns in the form of dividends, interests etc. from another entity in which the former invests its money and the examples of financial assets are cash and cash equivalents, bonds, marketable securities, mutual funds, etc.
What is equity share?
Equity Shares. Equity shares are the financial assets of the company when that company purchases equity shares issued by another company. This will be the financial asset for the company that purchased the equity shares and owners’ equity for the company that issued such equity shares.
What is derivatives in finance?
Derivatives are the financial instruments or we can say it is a contract between two parties deriving its values from the underlying assets where such underlying asset can be index, commodities, stocks, interest rates, currencies, etc. The most commonly used derivative instruments are options, futures, swaps, etc.
What is the right to receive money from a credit sale?
When the sales are made on a credit basis then the selling party has the right to receive the payment from the party who purchases their product (known as Debtor). So for the selling party, that debtor comes under the head accounts receivable. In short, these are the assets that creates a right to receive money in return to the credit sales made by the business within the credit period granted by it and also show the right to receive interest if the payment is delayed that is if the payment is not received within the allowable credit days period then the purchaser (Debtor) has to repay the purchase amount plus the interest amount which is calculated at the rate decided at the time of sale of goods.
What is the term for a financial asset where one party pays a premium to the insurance company?
Insurance Contracts. Insurance contracts are another type of financial assets where one party (known as a policy holder) pays a premium to the insurance companies to get the right of getting compensation at the time of occurrence of an uncertain future event in the business that results in the loss of the business.
What is mutual fund?
A mutual fund is a fund governed by the asset management company where they ask the small investors to give them money and in return, they provide them units of the mutual fund. So after collecting money from such investors, the mutual fund invests them in the financial market making a diversified portfolio of stocks.
What are the elements of financial accounting?
Financial accounting has basic elements like assets, liabilities, owners’ equity, revenue, expenses and net income (or net loss) which are related to the economic resources, economic obligations, residual interest and changes in them. Similarly, balance sheet which displays financial position of a business enterprise, ...
What are assets other than cash?
Assets other than cash provide benefits to a business enterprise by being exchanged for cash or other goods or services, by being used to produce or otherwise increase the value of other assets, or by being used to settle liabilities.
Why is valuation important in accounting?
In accounting, valuation is a prerequisite in the income measurement. In the capital maintenance concept, valuation of assets is needed to compute income from the increase in these valuations over time. In behavioural accounting theory, valuations should help the decision-makers in making proper predictions and decisions.
Why do investors use valuations in balance sheet?
Balance sheet uses valuations for meaningful preparation of statement of financial position. Investors are generally interested in predicting the future cash-flows to shareholders in the form of dividends and other distributions, in order to make proper decisions about purchase and sale of shares.
Why are valuation figures important?
ADVERTISEMENTS: Valuation figures are also useful to management in making operating decisions. However, the informational requirements of management are quite different from the informational requirements of the investors and creditors.
What are the elements of a balance sheet?
Similarly, balance sheet which displays financial position of a business enterprise, has basic elements like assets, liabilities, and owners’ equity. Assets denote economic resources of an enterprise that are recognised and measured in conformity with generally accepted accounting principles.
What is future economic benefit?
In a business enterprise, that service potential or future economic benefit eventually results in net cash inflows to the enterprise.
What is financial asset?
Financial Asset means a Security and refers, as the context requires, either to the asset itself or to the means by which a person’s claim to it is evidenced, including a Security, a security certificate, or a Securities Entitlement. “Financial Asset” does not include cash.
What is considered general assets?
General assets means all property, real, personal or otherwise, not specifically mortgaged, pledged, deposited or otherwise encumbered for the security or benefit of specified persons or a limited class or classes of persons; and as to such specifically encumbered property, the term includes all such property or its proceeds in excess of the amount necessary to discharge the sums secured thereby. Assets held in trust or on deposit for the security or benefit of all policyholders or all policyholders and creditors in the United States of America are deemed general assets.
What is a controlled securities account?
Controlled Securities Account means a Securities Account that (i) is maintained in the name of a Grantor at an office of a Securities Intermediary located in the United States and (ii) together with all Financial Assets credited thereto and all related Security Entitlements, is subject to a Securities Account Control Agreement among such Grantor, the Collateral Agent and such Securities Intermediary.
What is collateral account?
Collateral Accounts means any and all accounts established and maintained by the Pledgee in the name of any Pledgor to which Collateral may be credited.
What is a securities account?
Securities Account means the account for dematerialised securities maintained by the CSD pursuant to the Financial Instruments Accounts Act in which (i) an owner of such security is directly registered or (ii) an owner’s holding of securities is registered in the name of a nominee.
What is pledged investment property?
Pledged Investment Property means any investment property of any Grantor, and any distribution of property made on, in respect of or in exchange for the foregoing from time to time, other than any Pledged Stock or Pledged Debt Instruments. Pledged Investment Property excludes any Cash Equivalents that are not held in Controlled Securities Accounts to the extent permitted by Section 5.10 hereof.
What is allowed intercompany investment?
Permitted Intercompany Investments means Investments made by (a) a Loan Party to or in another Loan Party, (b) a Subsidiary that is not a Loan Party to or in another Subsidiary that is not a Loan Party , (c) a Subsidiary that is not a Loan Party to or in a Loan Party, so long as, in the case of a loan or advance, the parties thereto are party to the Intercompany Subordination Agreement, and (d) a Loan Party to or in a Subsidiary that is not a Loan Party so long as (i) the aggregate amount of all such Investments made by the Loan Parties to or in Subsidiaries that are not Loan Parties does not exceed $1,000,000 at any time outstanding, (ii) no Default or Event of Default has occurred and is continuing either before or after giving effect to such Investment, and (iii) the Borrowers have Excess Availability plus Qualified Cash of not less than $10,000,000 after giving effect to such Investment.
What are the characteristics of a fixed asset?
The key characteristics of a fixed asset are listed below: 1. They have a useful life of more than one year . Fixed assets are non-current assets that have a useful life of more than one year and appear on a company’s balance sheet as property, plant, and equipment (PP&E) PP&E (Property, Plant and Equipment) PP&E (Property, Plant, ...
Why are fixed assets important?
Fixed assets are crucial to any company. Apart from being used to help a business generate revenue , they are closely looked at by investors when deciding whether to invest in a company. For example, the fixed asset turnover ratio is used to determine the efficiency of fixed assets in generating sales.
Why are fixed assets depreciated?
They can be depreciated. With the exception of land, fixed assets are depreciated to reflect the wear and tear of using the fixed asset. 3. They are used in business operations and provide a long-term financial benefit. Fixed assets are used by the company to produce goods and services and generate revenue.
What is fixed asset?
Fixed assets refer to long-term tangible assets. Tangible Assets Tangible assets are assets with a physical form and that hold value. Examples include property, plant, and equipment. Tangible assets are. that are used in the operations of a business.
What are the most common depreciation methods?
Depreciation Methods The most common types of depreciation methods include straight-line, double declining balance, units of production, and sum of years digits.
What is PP&E on the balance sheet?
They provide long-term financial benefits, have a useful life of more than one year, and are classified as property, plant, and equipment (PP&E) on the balance sheet.
What is a CFI?
CFI is the official provider of the Financial Modeling and Valuation Analyst (FMVA)®#N#Become a Certified Financial Modeling & Valuation Analyst (FMVA)®#N#certification program, designed to transform anyone into a world-class financial analyst.
Measurement of Financial Assets
- The most important accounting issue for financial assets involves how to report the values on the balance sheet. Considering all financial assets, there is no single measurement technique that is suitable for all assets. When investments are relatively small, the current market price is a releva…
Accounting Classification of Financial Assets Under IFRS
- Equity investments in the first four rows refer to strategic investments. The first row refers to investments wherein a company exercises control (i.e., normally owns >50% of the voting interest) of another company. The proper accounting treatment is to consolidate the financial statements of the investor and the subsidiary into a single set of financials. In addition, joint control in rows …
The Equity Method
- The Equity method is used for either joint ventures or significant influence investments (i.e., owning 20%-50% voting interest). It either increases or decreases the investment account based on income earnings and dividend payments. This is best illustrated through an example. On January 1, 2017, XYZ Company acquired 10,000 shares of ABC Company, representing 30% of th…
Fair Value Through Profit Or Loss
- The FVPL accounting treatment is used for all financial instruments that are intended to be held for sale and NOT to maintain ownership. When these assets are being held, they are always recorded at fair value on the balance sheet, and any changes in the fair value are recorded through the income statement, eventually affecting net income and not other comprehensive income (O…
Additional Resources
- Thank you for reading CFI’s guide to Financial Assets. To advance your career, these additional CFI resources will be helpful: 1. Asset Class 2. Asset Acquisition 3. Return on Assets & ROA Formula 4. Stockholders Equity
Cash and Cash Equivalents
Accounts Receivable / Notes Receivables
- Companies follow the accrual concept and often sell to their customers on credit. The amount to be received from customers is called the Accounts Receivable net of an adjustment for bad debtsBad DebtsBad Debts can be described as unforeseen loss incurred by a business organization on account of non-fulfillment of agreed terms and conditions on account of sale of …
Fixed Deposits
- A fixed deposit facility is a service given to the depositor to get interested and the principal amount on the maturity date. Example:Depositor makes an FD of $100,000 with a bank @ 8% simple interest for one year. The depositor will receive $100,000 and $8000 Interest on the maturity date.
Equity Shares
- An equity shareholderEquity ShareholderA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares.read more is a fractional owner who undertakes the maximu…
Debentures/ Bonds
- Debentures/bonds are a type of financial asset issued by a company giving the holders the right to receive regular interest payments on a fixed date and the principal repayment on maturity. Unlike dividends on equity shares, interest payments on debentureDebentureDebentures refer to long-term debt instruments issued by a government or corporation to meet its financial requirements…
Preference Shares
- Preference shareholders are the holders of preference shares, which give the holders the right to receive dividends; however, they do not carry any voting rights. Like debenture, these holders receive a fixed dividend rate, whether the organization earns a profit or incurs a loss. In liquidation, preference shareholders have their claim on assets earlier than equity shareholders but later to …
Mutual Funds
- Mutual funds collect money from small investors and invest such collected money in financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact an…
Interests in Subsidiaries, Associates and Joint Ventures
- A company whose more than 50% stock is controlled by another company (parent companyParent CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary's directions and policies.read m…
Insurance Contracts
- Based on IFRS 17, contracts under which a party (issuer) accepts significant insurance risk and agrees to compensate the other party (policyholder) if a specified uncertain future event which is also an insured event, adversely affects the policyholder, are insurance contracts. Hence, the value of the contract is derived from the risks that the policy covers. Life insurance policies pay t…
Rights and Obligations Under Leases
- A leaseLeaseLeasing is an arrangement in which the asset's right is transferred to another person without transferring the ownership. In simple terms, it means giving the asset on hire or rent. The person who gives the asset is “Lessor,” the person who takes the asset on rent is “Lessee.”read moreis a contract under which one party allows another party to use the property for a specified …
Types of Financial Assets
Financial Assets Classification
- There is no single measurement classification technique suitable for all these assets. However, they can be classified as Current AssetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, ac…
Advantages
- Some of these assets, which are highly liquid, can easily be used to pay bills or to cover financial emergencies. Cash and cash equivalents come under this category. On the other hand, one may have...
- It gives investors more security when they have more capital parked in liquid assets.
- It serves as a major economic function of financing tangible assets. It becomes possible wit…
- Some of these assets, which are highly liquid, can easily be used to pay bills or to cover financial emergencies. Cash and cash equivalents come under this category. On the other hand, one may have...
- It gives investors more security when they have more capital parked in liquid assets.
- It serves as a major economic function of financing tangible assets. It becomes possible with the transfer of funds from those who have a surplus of it to where it is needed for such financing.
- Financial assets distribute the risk as per the preferences and risk appetite of the parties involved in the intangible asset’sIntangible Asset'sIntangible Assets are the identifiable assets which...
Disadvantages and Limitations
- Financial assets (liquid assets) like deposits in savings accounts and checking accounts with banks are greatly limited in their return on investment, as there are no restrictions for their withdra...
- Furthermore, these assets like CDs and money market accountsMoney Market AccountsMoney Market Account is the account which receives all the interests from the instr…
- Financial assets (liquid assets) like deposits in savings accounts and checking accounts with banks are greatly limited in their return on investment, as there are no restrictions for their withdra...
- Furthermore, these assets like CDs and money market accountsMoney Market AccountsMoney Market Account is the account which receives all the interests from the instruments in the money market accord...
- It comes with a maturity date in the contract; attempting to cash out assets before maturity calls for penalties and lower returns.
Important Points
- The value of this asset is determined by the demand and supply of such assets in the market.
- These assets are valued as per the cash required to convert them, which again is decided based on certain parameters. The value of people’s financial assets can change significantly, especially if...
- The measurement of financial assets cannot be done using a single measurement method. S…
- The value of this asset is determined by the demand and supply of such assets in the market.
- These assets are valued as per the cash required to convert them, which again is decided based on certain parameters. The value of people’s financial assets can change significantly, especially if...
- The measurement of financial assets cannot be done using a single measurement method. Suppose we measure stocks when investments are small in quantum; the market price can be considered to measure...
- Every financial asset has different risks and returns for its purchaser. For instance, a car company usually has no idea about the sale of its cars, so the value of the company’s stocks may increas...
Conclusion
- These are a crucial part of any organization. It always needs to have a good record of its financial assets to be put to use whenever needed, like in financial emergencies. Therefore, it is helpful to check the availability of such assets. Every financial asset has a different but particular goal for the holder. Each has a different amount of risk associated with it. Thus, returns are also differen…
Recommended Articles
- This article has guided what financial assets are and their definition. Here we discuss the importance of Financial Assets & their characteristics, advantages & disadvantages. You may also learn more about the following articles – 1. Financial Assets Examples 2. Current Assets vs. Non-Current Assets 3. Quick Assets Overview 4. What are the Non-Performing Assets (NPA?