Give an Example of an Asset That Is Not Recorded on a Balance Sheet, and Critically Evaluate Why It Is Not, Before Developing an Argument for the Inclusion of the Asset.

Topics: Balance sheet, Asset, Liability Pages: 3 (1213 words) Published: December 27, 2011
Word Count: 990

Give an example of an asset that is not recorded on a balance sheet, and critically evaluate why it is not, before developing an argument for the inclusion of the asset.

Whether or not certain assets and liabilities should be placed on a balance sheet is a much talked about subject. The accounting equation, Assets – Liabilities = Ownership Interest, represents the balance sheet; which is produced each year in a Public Limited Company’s financial statement; which can be viewed by the public. I will use this essay to discuss why the asset of a ‘home-grown’ football player, a player who signs as a trainee with a professional club under the age of 16, is not included in the balance sheet of the company. According to Thompson, P (2003) new rules, which started in the year 2000, require clubs to show transfer fees on their balance sheets as intangible assets. ‘Intangible assets don’t have any physical features, rather they represent legal rights and relationships beneficial to their owner’ (Glautier and Underdown 2001, p.166). Of course, no transfer fee has been paid for a trainee. The performance of such a player who has come through the youth system at a football club must be seen to be beneficial to the owner; but the balance sheet still doesn’t record such an asset. Assets are defined as ‘rights or other access to future economic benefits controlled by an entity as a result of past transactions or events’ (Weetman 1999, p.28). The company can use the employee, even if they are not controlled by a contract. The future economic benefits from the player would be producing goods or services (the performance level assisting the winning of prize money, for example) while being controlled by the entity in the form of payment through a contract. This is all a result of a past transaction or event where the entity has got control of the employee. Yet, there is a high level of doubt involved with the asset. Using the Accounting Standards Board’s...
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