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Definition of Capital Assets
In simple terms, an asset is anything of value that is legally owned by you. Or more practical definition based on IASB:
An asset is a resource controlled by you because of past events and from which you expect future economic benefits to flow to you.
We are looking a little broader by saying anything under your control, not necessarily something you have full ownership of. Example many cases your vehicle is probably financed by a bank loan, till you have paid the loan the bank has ownership. We use control as the minimum hurdle, as you will probably get the economic benefit from the assets rather than the owner on paper.
Second, only included assets where the economic benefits to you are probable and the value can be measured reliably.
For a typical household you can group assets into:
- Liquid assets
- Fundamental Assets
- Investment Assets
- Human Capital
You should record assets at current fair market value. The fair market value is the price at which the asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.
Fortunately, you can easily look up second hand value of most items on the Internet by visiting classified ads sites etc.
Table of Contents
- Traditional View on Asset Classes
- Capital Assets
- Consumable or Transformable
- Store of Value Assets
- Human Capital
- Reference or Additional Material
Your human capital is the present value of your future labour income. When you work you are exchanging labour for a monetary reward. The monetary reward you earned is a dividend or an interest payment on your human capital. If you are fortunate enough to live in a country with a social security system, your human capital has another component. This component is any social security benefits the state entitles you to.
Note the actual ownership of the assets, especially if you finance it. Then a liability is attached to that asset and we need to link that to a line item under liabilities.
Examples of human capital assets:
- Untaken leave days
These are assets you hold or gain intending to generate a return from them. This can be for trading or as in most cases longer term in nature.
Examples of investment assets:
- Securities (shares, bonds)
- Cash value of insurance policies
- Fixed deposits
- Investments into funds
- Property held for investment
These are assets that are readily available and easily convertible into cash without impacting the value substantially.
Examples of liquid assets:
- Money in a savings account
- Money market funds
Unearned Financial Assets
Investment assets only looks at the current assets at today’s prices. Unearned financial assets included any planned future savings and growth on current and future investments. Discounted back into current valuations. This is purely to model your financial planning more accurately, to plan better decades into the future.
These are assets you hold more for the function they perform, you are unlikely to sell them in the short to medium term.
Examples of fundamental assets:
- Personal effects, clothing, furniture and jewellery