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Fixed Assets & Intangibles

Fixed Assets & Intangibles. Chapter 9. Nature of Fixed Assets. Are long-term or relatively permanent assets They are Tangible assets because they exist physically. They are owned and used by the business Not offered for sale as part of the normal operations. Consists of.

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Fixed Assets & Intangibles

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  1. Fixed Assets & Intangibles Chapter 9

  2. Nature of Fixed Assets • Are long-term or relatively permanent assets • They are Tangible assets because they exist physically. • They are owned and used by the business • Not offered for sale as part of the normal operations

  3. Consists of If the purchased item is long-lived, then it should be capitalized. It should appear on the balance sheet as an asset. If not cost is reported as an expense on the income statement

  4. Cost of Acquiring Fixed Assets • Land • Purchase price • Sales taxes • Permits • Title fees • Surveying fees • Removing unwanted buildings • paving

  5. Cost of Acquiring Fixed Assets • Building • Architects’ fees • Engneers’ fees • Insurance cost • Interest on construction • reconditioning

  6. Cost of Acquisition • Land Improvement • Trees and shrubs • Fences • Outdoor lighting • Paved parking areas

  7. Cost of Acquisition • Machinery & Equipment • Sales taxes • Freight • Installation • Repairs • reconditioning

  8. Notes • Only costs necessary for preparing a long-lived asset for use should be included as a cost of the asset. • Unnecessary costs that do not increase the asset’s usefulness are recorded as an expense • Vandalism • Mistakes in installation • Uninsured theft • Damage during unpacking and installing • Fines for not obtaining proper permits from governmental agencies

  9. Once a fixed asset has been acquired and placed in service: Expenditures may be incurred for ordinary maintenance and repairs. Expenditures may be incurred for improving an asset or extraordinary repairs that extend the asset’s useful life. Ordinary Maintenance and Repairs: Expense in the current period Revenue Expenses Capital & Revenue Expenditures

  10. Revenue Expenditure • Suppose that a tune up is done the delivery truck for a cost of $500 paid in cash.

  11. Capital Expenditures • Asset Improvements: • Improve an asset • Capital expenditures • Recorded as increases in the fixed asset account. • Changes the depreciation for the remaining life of the asset

  12. Capital Expenditures • Suppose that a new lift placed in the delivery truck for a cost of $5,500 paid in cash.

  13. Capital Expenditures • Extraordinary repairs • An expenditure that increases the useful life of an asset beyond its original estimate. • Debited to the related accumulated depreciation account. • Considered capital expenditures

  14. Capital Expenditures • Suppose that a new engine is placed in the delivery truck for a cost of $7,000 paid in cash.

  15. Leasing Assets • Lease - is a contract for the use of an asset for a stated period of time. • Parties to a lease • Lesser – party who owns the asset • Lessee – party to whom the rights to use the asset are granted by the lesser • Obligated to make periodic rent payments for the lease them

  16. Leasing Assets • Types of Leases • Capital lease • Is accounted for as if the lessee has purchased the asset. • Debit the asset account for the fair market value of the asset • Credits the long-term lease liability account • Asset is written off as expense over the life of the capital lease. • Amortization expense • Operating Lease • Lessee records the payments under an operating lease by debiting rent expense and crediting cash.

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