FinAcct - Fixed Assets
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What are the three common categories for Fixed Assets?
- - Property, Plant and Equipment (PP&E)
- - Intangible Assets
- - Natural Resources
What are the common charateristics for Fixed Assets?
- - Long Lives
- - Must allocate costs to periods benefited
What is the nature of Property, Plant and Equipment?
- Tangilbe, personal or real property, actively used in a trade or business, properly classified as assets.
- Does not include property that fails to provide future economic benefits
What costs should be Capitalized?
1. Cost of an Asset - All costs incurred to acquire title, transport asset, and prepare it for the purpose for which it was acquired.
2. Capitalize all such costs if they increase the productive life or capacity of the asset.
What costs should be Expensed?
1. All costs that simply allow the asset to perform as expected are to be expensed.
How does GAAP treat PP&E Costs over the life of the asset?
GAAP requires that these costs be allocated as expenses over the life of the asset, matching the loss in the utility of the asset with revenues the use of the asset helps to generate.
The allocation process is called DEPRECIATION, and applies to all assets except land and art.
What are the steps to calculate Depreciation Expense?
- 1. Determine COST of the Asset
- 2. Estimate Useful Life
- 3. Estimate Salvage Value
- 4. Apply Acceptable Depreciation Methods
What are acceptable Depreciation methods?
- 1. Straight Line Methods
- 2. Accelerated Methods
What are the two types of Straight Line Methods?
1. Straight LIne Method
2. Units of Productin Method
What are the two types of Accelerated Methods?
- 1. Double Declining Balance Method
- 2. Sum-of-the-Years-Digits Method
How are Intangible Assets treated?
- - Property Rights Purchased or Developed
- - Measure at Historical Costs
- - Amortize Over Useful Life
- - Special Problems- R&D, Goodwill
How are Natural Resources treated?
- Wasting resources including Ores and Mineral Deposits of all varieties with value, as well as timber and crops.
- Measurement Rule: Historical Cost
- As minerals are mined and sold, depletion expense is recognized
- Calculate as Unit-of-Production Depreciation
- Changes in Estimates are common.
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