fixed assets & intangibles chapter 9. nature of fixed assets are long-term or relatively...
TRANSCRIPT
Fixed Assets & Intangibles
Chapter 9
Nature of Fixed Assets
Are long-term or relatively permanent assetsThey are Tangible assets because they exist physically.They are owned and used by the businessNot offered for sale as part of the normal operations
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
Cost of Acquiring Fixed Assets
Land Purchase price Sales taxes Permits Title fees Surveying fees Removing unwanted
buildings paving
Cost of Acquiring Fixed Assets
Building Architects’ fees Engneers’ fees Insurance cost Interest on
construction reconditioning
Cost of Acquisition
Land Improvement Trees and shrubs Fences Outdoor lighting Paved parking areas
Cost of Acquisition
Machinery & Equipment Sales taxes Freight Installation Repairs reconditioning
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
Capital & Revenue Expenditures
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
Revenue Expenditure
Suppose that a tune up is done the delivery truck for a cost of $500 paid in cash.
Account Debit Credit
Repairs and maintenance expense
$500
Cash $500
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
Capital Expenditures
Suppose that a new lift placed in the delivery truck for a cost of $5,500 paid in cash.
Account Debit Credit
Delivery Truck $5,500
Cash $5,500
Capital Expenditures
Extraordinary repairsAn expenditure that increases the useful
life of an asset beyond its original estimate.Debited to the related accumulated
depreciation account.Considered capital expenditures
Capital Expenditures
Suppose that a new engine is placed in the delivery truck for a cost of $7,000 paid in cash.
Account Debit Credit
Accumulated Depreciation- Truck $7,000
Cash $7,000
Leasing Assets
Lease - is a contract for the use of an asset for a stated period of time.
Parties to a leaseLesser – party who owns the assetLessee – party to whom the rights to use
the asset are granted by the lesserObligated to make periodic rent payments for
the lease them
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.