This depends on what you mean by “it”.
Whether something is an asset is a fairly objective question. I might not know exactly how much my somewhat old sofa would fetch, but I’m fairly confident that if the price went down far enough, I could unload it. It might get down to a matter of pennies if it’s bad-looking enough, but those are still pennies. And the related idea: I know that replacing the sofa would cost me money that I would willingly spend, so if I continue to use what I have with the full knowledge that I’d find some replacement if I didn’t have it, there is self-evidently some value there that it continues to provide.
We might point at small-value cases, but even then, we have items that are clear assets. Looking at a half-used container of deodorant, we might wonder if it still has positive value for anyone else but me. Would anyone want to buy it? Well, it’s an outside shot but possibly yes, maybe, at one cent or so. But replacement is still an issue. I know that if it disappeared in a puff of smoke tomorrow, I would immediately pay to replace it. That is an objectively observable fact. Deodorant clearly is an asset for me, and don’t you listen if my friends say otherwise.
But with the accounting, you’d just expense out something that small. It’s clearly valuable, clearly an asset, but it’s just as clearly a waste of time to list all two dollar items of negligible resale value.
Yes.
The actual value of an asset is a big mysterious question mark. This is the part that is rather subjective. Real-world accounting follows strict rules for consistency, but the truth is that the real-world value of objects is almost never what it says on the balance sheet.
Example: If I’m starting a new manufacturing business, I might buy the new machinery for one million dollars. Since that’s how much I paid, and it is also the rough replacement cost, then that’s the value I’m going to put down in the books according to the rules. But is the machinery really worth a million bucks if it’s used in the purpose my business is allocating it to? No. I’m almost 100% certain that the machinery is not worth the million bucks listed in the ledger. What is it actually worth? We don’t know. If the business ends up being highly successful, then the machinery was clearly worth more to me than what I initially paid for it. I’m the one who saw that a million dollar purchase of this sort of machinery could win me even more money because I chose the right application for it, so I’m going to rake in a profit for that. And the very fact that the business is profitable lets us know that the machinery – in this context, within this business, under this management – is more valuable than what I spent to acquire it.
Similarly, if the business fails, then that machinery is clearly worth less than the million I spent for it. It’s still an asset, but it was allocated to the wrong purpose, meaning it’s actual value is just as scrap metal. Resale of that asset will go for a small percentage of what I originally paid. So yes, absolutely, valuation of assets is extremely subjective and tough. Even for a historically successful company, we can’t know with any certainty how successful they will continue to be out into the future.
This is why we rely on the trial-and-error of the business world to make these sorts of choices, rather than having centralized decision-making. There are way too many decisions to make, too much relevant information that is dispersed among too many people, to have any hope of bringing order and efficiency to this system using any kind of centralized authority.