• Faruk Ojikutu


The answer is asset. Despite what some online gurus may tell you! You can take our word for it, or keep reading…

Looking at the accounting conceptual frameworks definition of an asset “A present economic resource controlled by the entity as a result of past events. Economic resource has the potential to produce economic benefits”

The car itself will always hold some form of value, so can produce economic benefits, no matter how old, rusty, ugly the car may be! There will always be a breaker/scrap yard that will purchase the car for materials or parts. And for that very reason your car is an asset despite its value.

So why the mention of liability?

The misconception is that an asset must be something that generates money above its cost i.e. a business vehicle, a private hire vehicle or appreciating antique car. If that was the case practically everything you own is a liability, from your toothbrush, to the clothes you wear, to the device you are reading this on. See how the logic is flawed?

What people are calling a liability is a “depreciating asset” which loses value as it is consumed/worn & torn. Cars are an example of a high value depreciating asset that is commonly owned by the general public, the notorious loss of value is what sparks this debate.

What if I Finance or Lease my car?

If you finance or lease your car (Right of use asset under accounting standards) the loan to buy the vehicle or the contractual lease payments are liabilities, the car itself is still an asset which could be sold to pay off the loan or collateral if you cannot meet payments.

The accounting conceptual frameworks definition of a liability is “A present obligation of the entity to transfer an economic resource as a result of past events. Entity has no practical ability to avoid transfer”

You can have as a result of having a car, but the car itself is not a liability.

Final Verdict

A car is an asset.

Next time you get into this debate with someone online. Say nothing, just share this

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