In law and accounting, the concept of assets appears at every turn – on company balance sheets, in inheritance, divorce or insolvency. Yet many have no idea what exactly it means. Simply put: assets are anything of value that you own. But what assets are there, why are they divided into current and non-current, and why is it a good idea to understand them from a legal perspective?
Assets are all property, plant and equipment over which an entity has control and from which it expects future economic benefits. These may be tangible assets (e.g. a home, a car, stock in a warehouse) or intangible assets (e.g. copyrights, trademarks, software, know-how).
In other words, assets are anything that can bring you or your business a benefit or money. From a legal perspective, assets are crucial in property settlements – for example, in divorce, inheritance or company liquidation.
The distribution of assets and liabilities shows how you are doing economically. A high proportion of current assets means flexibility. Long-term assets show stability but may be less liquid. Banks, investors and courts assess what assets you own and what they are worth – for example, when applying for a loan or determining the amount of a settlement.
First, let’s explain what a balance sheet is. A balance sheet or balance sheet is a basic financial statement that shows the assets and financial position of a person or company. Basically, it is an inventory of everything you own, as well as an overview of where you got the funds to do so. It is made up of two inseparable parts – assets and liabilities. These two components must always be in balance, which is why a balance sheet is also called a balance sheet.
Assets represent property, i.e. everything you own (even in the form of a lease or receivable, for example) that has a value. These can be tangible assets (e.g. house, car, furniture, equipment), intangible assets (e.g. copyrights, software) and financial assets (money in accounts, investments, receivables). In other words, assets answer the question “What do I have?”.
Liabilities represent the sources of financing for the assets, i.e. where the money to acquire the assets comes from. They are divided into equity – your own funds (e.g. savings, company profits) and external sources – liabilities to others (e.g. loans, mortgages, debts, unpaid invoices). Liabilities therefore answer the question “Where do I get the funds for what I own?”.
For example, if you own an apartment worth CZK 5 million but you financed it with a mortgage of CZK 3 million, then your assets are CZK 5 million (the value of the apartment) and your liabilities are CZK 3 million (the liability to the bank). The difference between your assets and liabilities, i.e. CZK 2 million, is your net worth or equity – the part of the value of the apartment that is actually yours and for which you no longer have debt.
The distinction between assets and liabilities is crucial. For example, when dividing community property (CP), it is not just what the spouses own that is divided, but also their debts. For example, if one of the spouses bought a house with a mortgage, this financial burden must also be taken into account.
In inheritance proceedings, not only property (assets) but also liabilities (liabilities) are inherited. The heirs can thus also assume the debts of the deceased.
And it is also a crucial issue in business – the balance sheet helps to determine the true financial stability of the company and to decide whether the company has sufficient own resources or is over-indebted.
Tip: A company’s assets form the basis of any business. Whether it is production machinery, software licenses, financial reserves or even stored goods – everything has its own value, legal regime and accounting specifics. Read our article to get a feel for what your business owns.
Assets are classified according to their liquidity, i.e. how quickly they can be converted into cash. The first type is current assets, i.e. those that are constantly “spinning” in the business or personal assets. These include mainly cash in hand or in accounts, receivables (e.g. unpaid invoices) and stocks of materials or goods. Current assets have a short useful life – they are usually used up or converted within one year. It is current assets that determine how liquid a company is and how it manages its short-term liabilities.
On the other hand, non-current assets are assets used in the entity’s business or operations for a longer period of time – for example, property, machinery, vehicles, licences, know-how or software. Their value changes over time (e.g. depreciation for tangible assets or amortisation for intangible assets).
Valuing assets is an essential step not only in accounting but also in legal proceedings – for example, in divorce, inheritance, insolvency or the sale of a business. The way an asset is valued has a direct impact on what it is actually worth and how it will be disposed of.
In Czech law, valuation is governed primarily by the Accounting Act and, in legal disputes or proceedings, also by the Act on Experts, Expert Offices and Expert Institutes.
Below we describe the three main ways in which assets are valued in practice.
From an accounting perspective, assets are usually valued at cost, i.e. the amount actually spent by the entity to acquire them. Cost includes not only the purchase price itself, but also incidental costs such as transport, assembly, customs duties or administrative charges.
Over time, the value of the asset is reduced by depreciation to reflect wear and tear or obsolescence. The result is the so-called amortised (book) value, which is recorded on the balance sheet and used for the company’s financial statement.
This method of valuation is important for tax and accounting purposes, not necessarily for the fair valuation of the asset when it is sold or divided.
Market value expresses how much an asset would fetch in an arm’s length sale. Under the Accounting Act, an entity may revalue an asset to fair value in certain circumstances (in particular for securities, derivatives or interests in other companies).
However, in a normal legal or economic context, we use the term ‘market value’ to mean what an item would sell for today if it were sold in the ordinary course of business.
Example: an apartment you bought 10 years ago for 2 million may have a market value of 5 million today. So book value (cost less depreciation) is different from current market value.
The market value is crucial, for example, in the settlement of a matrimonial property, in inheritance proceedings or when selling a business or a share in a company.
In legal proceedings, the expert’s report is decisive. This can be requested by the court, a notary or even a contracting party to objectively determine the value of the property.
An expert report is a professional opinion of an expert registered in the official list of the Ministry of Justice. This document must comply with formal and substantive requirements and its conclusions have legal weight.
An expert opinion is used in particular in divorce and property division (the expert determines the fair value of a flat, business or other property for a fair settlement), in probate proceedings (to accurately determine the value of the estate), insolvency proceedings (to determine the value of the estate) and in the sale or transfer of companies – the expert determines the value of the business or business share.
When an appraisal is carried out by an expert, it takes precedence over a subjective or accounting determination of value because the courts or authorities treat it as expert evidence.
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Legally and economically, what is not recorded is as if it did not exist.
Therefore, it is important to: keep an inventory of assets (including proof of acquisition), update the value of assets (especially real estate), insure valuable assets, and consider the legal form of ownership (e.g., corporate vs. personal property).
Legal instruments that can protect assets are separation agreements, liens, trusts and liability or property insurance.
Assets are all property that has economic value, whether tangible (e.g., real estate, cars, inventory) or intangible (e.g., software, trademarks, or know-how). They are distinguished between current assets, which turn quickly into cash, and fixed assets, which have a longer life. A proper understanding of assets and their difference from liabilities (sources of financing) is crucial not only for accounting but also from a legal perspective – in divorce, inheritance, insolvency or sale of companies. The valuation of assets is governed by the Accounting Act and often requires an expert’s report, which carries legal weight. Proper management and protection of assets consists of keeping records, updating their value, insurance and appropriate legal protection – for example, through contracts, trusts or liens.
Assets include anything of value to you or your business – that is, property you own. These can be tangible assets (e.g. real estate, cars, machinery, inventory) or intangible assets (e.g. software, licenses, trademarks or know-how). It also includes funds, receivables and investments.
Assets represent what you own, while liabilities show where you got the money to pay for it – i.e. your liabilities and debts. The difference between your assets and liabilities is your equity – the actual assets you have left after all your debts have been deducted.
Knowledge of assets is crucial in divorce, inheritance or insolvency, where assets and liabilities need to be divided fairly. Courts or notaries often require an accurate valuation of assets in order to determine each party’s share or the value of an inheritance.
Assets can be valued in several ways – book value (cost less depreciation), market value (current market price) or by means of an expert’s report, which has legal weight and is used in court or inheritance proceedings.
It is essential to have your property properly registered, insured and legally secured. Marital property settlement agreements, trusts, liens or property insurance can help. If you are unclear, it is advisable to contact a lawyer who can suggest the most appropriate solution for your situation.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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