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?
SOLUTION This solution is FREE courtesy of BrainMass!
<br>Here are your answers:
<br>a) This first question essentially deals with the issue of intangible assets. The official definition of an intangible asset is an asset that is not physical in nature. For example, things like copyrights, patents, intellectual property, and goodwill would be considered intangible. In this question they have bought the right to use the site (ie. lease), not the site itself.
<br>b) Competing tenders essentially mean that there is interest in the site from more than one party and that there are different ideas of what the site should be worth. This question touches on the difficulty of trying to put a value on something that isn't physically there (ie. tangible).
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