Category: Business > Financial Accounting
Subject: Non-Current Assets (asset definition / Asset valuation)
Details: A group of metropolitan councils had for some years operated a very large rubbish tip. Unfortunately the tip was rapidly filling and the search was on for a new one.
The councils favoured acquiring a yawning void of nearly 3 million cubic metres, which was formerly a quarry. They offered $1 a cubic metre to lease the quarry site.
A newspaper columnist noted that this sounded like something for nothing. However, to some experts in private enterprise it sounded more like nothing for something. These enterprising operators secured the lease of the quarry by tendering $2.50 a cubic metre.
(a) Explain how an asset can consist of 'nothing'.
(b) What do the competing tenders indicate about the concept of asset valuation?
In this case the asset is valued based on its disposal capacity. Since you can use the quarry to dispose of this rubbish and charge for the disposal, it has a value-in-use, even if it is empty space. As a disposal company, you could ...
The solution assists explaining how an asset can consist of nothing, and what completing tenders indicates about the concept of asset valuation.