Boynton (2011, p. 789) reflected that an asset is any commodity that has an economic value which is owned by an individual or an organization. Other assets are usually converted to cash easily. Examples are cash, securities, houses, equipment, inventory, real estate, cars and other properties. On the balance sheet the assets are equivalent to liabilities, stock (preferred and common).
Assets are also divided into current assets, long term assets, preferred assets and intangible assets. All this assets are made available in the various organizations to ensure the smooth running of such organizations. Many times the concerned parties usually want to increase their assets leading to purchases. When assets are purchased they are credited on the assets account of the balance sheet (Butt, 2009, p. 900).
Assets purchases effectiveness
To ensure effectiveness of assets the buyers are to determine whether to buy the assets alone or together with the stock of the seller’s entity. This will make the business or individual to specify the other liabilities they are able to assume while purchasing the assets. When the buyer buys assets when the prices are high than the aggregate tax basis the buyer is able to acquire a stepped up basis, this is usually equivalent to the purchase price.
The effectiveness of purchasing assets is clearly seen when the buyers acquire the assets alone and leave the stock behind, this will enable them do away with various problems that occur as a result. Problems associated with the shareholders are usually found when some shareholders are adamant of doing away with the shares they possess. Buying assets through an asset acquisition is very cheap; this will ensure the purchases of such assets are done in a way that is recorded. The best point of asset acquisition is the goodwill is usually amortized for the purpose of tax this is usually attached to the purchased assets. Such effectiveness has been shown in the past by the Federal Reserve Bank of New York; they did give out asset purchases through the Federal Reserve. It worked so well because they were effective in lowering longer term rates that were used in borrowing. This was done in the long term borrowing of funds by individuals outside the organization. The mortgage market did feel this move and it extended to the other securities of treasury (Boynton, 2011, p. 89).
This in essence ensures that all the policies of monetary in nature can bring down the financial conditions when the total rates of the federal funds are lowered to zero or near zero. The Federal funds rates are supposed to be lowered to ensure the stance of monetary policies in the economic outlook which went down as well. The central bank went ahead and purchased more assets which had both long and medium maturities.
This included treasuries and agency debt; this led to lowering of private rates of purchasing and borrowing. Hence the idea of asset purchasing and acquisition is left in the hands of the buyers who are left with the decision to decide when and why to acquire the new assets. Asset purchasing efficiency is usually applicable to all the assets that are borrowed or given to an organization or individual. The total amount of assets that are borrowed by individuals are made use of for a specific time and then returned back. During the acquisition period the buyers are able to determine the total advantages and effectiveness of the commodity that has been purchased. When they are found to be beneficial to the organization then the buyers always go to borrow the owner’s permission to acquire them for the price which they may choose. Many organizations have LSAPs which will ensure low target funds rates (Garrison, 2011, p. 678).
When the funds rates are low the borrowers are able to maximize the purchased assets easily. Net supply of assets should be lowered to lower rates, this are those with long maturities. They will end up having better economic values and low reductions made in the rates on the securities in question. The reductions that are usually made do show the lower risk premiums with term premiums taken care of at all costs. By introducing LSAP programs the organizations are able to check on the longer term interest rates on the debts that are available and improving the liquidity level of the assets as a whole.
For effectiveness to be measured the recordings of purchases should be done every time the purchases are made. When the purchases are made the sellers are also mandated to do the same recording to ensure both parties have the same records and are given out when they are needed by either party. Some purchase which are made today and paid for later are usually hard to record because the buyers may decide not to have them because of one or two reasons. This will lead to accounts receivables and accounts payables being debited in either side of the transaction (Butt, 2009, p. 908).
Asset purchase has been done since time memorial to ensure that the buyers are able to acquire the equipments and other properties that they need to go ahead with their business without any problems arising. In the event of a transaction taking place both parties are required by law to record such transactions at the time they are done. When such purchases are made the buyers usually acquire the items that they need most in their premises and the sellers on the other hand provide what is needed to ensure the customers come back for more purchases.