Long-term tangible business assets need to have the right type of business insurance cover. But what exactly are assets and how do we define these?
Assets are resources that are owned by a business and used to generate income, however there are two different categories of assets:
Non-current assets:
These are long-lasting resources – in other words possessions that the business owns and which include property, buildings, vehicles as well as equipment.
- Fixed tangible assets include land and buildings, vehicles and apparatus.
- Financial assets include fixed assets, investments and shares in corporations.
Current assets include:
- Current assets consist of cash or assets which can be converted into cash in the short term – this is usually less than a year.
- Current assets consist of stock, trade and other receivables/debtors, cash as well as cash equivalents.
Farmers need to take out the right business insurance:
Farmers need the kind of asset insurance that will take care of their assets. Tractors, for example, are fixed assets because they help farmers to generate income – but such machinery has limited usage and needs to be replaced.
Cost price of a business asset – the original price paid for the asset, including any cost incurred in the procurement of the asset such as transport charges, registration price or installation fees need to be taken into consideration when taking out business insurance cover, as it is imperative that goods are insured at the replacement value and not the original price paid.
Depreciation – depreciation plays a role when it comes to the replacement value of assets. Depreciation indicates how much of the value of the asset has been used to generate income in a specific period of time. Depreciation also indicates which part of the cost of the asset can be used as a tax-deductible expense.
Accumulated depreciation:
- This is the total depreciation written off on a specific asset up to a specific date. It’s the total value of the asset “used”.
Carrying value:
- Is the remaining value of an asset.
- Carrying value is the part of the cost of an asset not yet written off as an expense.
- Cost price minus accumulated depreciation.
- The minimum carrying value.
It is important to ensure your assets are always insured at their replacement value, as assets can and do depreciate.
An asset register is important for business insurance:
An asset register contains all the particulars of each asset and aids the business to keep track of each fixed asset’s value.
An asset register is important for the control of assets and for making decisions about the economic value of assets.
Suffice to say, keeping an up-to-date business asset register plays an important role and is essential to submit to the business insurance company.
