Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Identifiable Asset

What it is:

An identifiable asset is anything that has commercial or exchange value and can provide future economic benefits. Identifiable assets can be tangible or intangible.

How it works (Example):

Let’s assume XYZ Company intends to purchase an office building for $10 million. When the company executes a legal purchase agreement with the seller, XYZ Company will have a place from which to conduct its business operations, and it will control what happens to the building from that point forward. Thus, XYZ Company acquired a $10 million identifiable asset and should reflect this asset on its balance sheet.

Assets that are not identifiable are generally considered goodwill. This would include amounts paid based on Company XYZ's future earnings potential rather than for identifiable assets. Accordingly, one way to tell whether an asset is identifiable is if it can be disposed of without disposing of the entire business.

Assets are presented on the balance sheet in order of their liquidity. If a company expects to sell or otherwise recognize the economic value of an asset within one year, the asset is generally classified as a current asset on the balance sheet. If a company expects to sell or otherwise recognize the economic value of an asset after more than one year, the asset is generally classified as a long-term asset. Property, plant and equipment (such as the office building above) are common long-term assets.

Most assets lose value as they age, that is, they depreciate (amortization is the term used when referring to intangible assets). The rate at which a company chooses to depreciate its assets may result in a book value that differs from the current market value of the assets.

Why it Matters:

Information about a company’s identifiable assets is a key component of accurate financial reporting, business valuation and thorough financial analysis. Although the Financial Accounting Standards Board, the Securities and Exchange Commission and other regulatory bodies define how and when a company’s identifiable assets are reported, companies may employ a variety of accepted methods for recording, depreciating and disposing of assets, which is why analysts must also carefully study the notes to a company’s financial statements.

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