Unformatted text preview: Fixed Assets and Intangible Assets
Chapter 9 1 Fixed Assets Long-Term or relatively permanent assets Also known as Property, Plant, & Equipment Land, Land Improvements, Buildings, Equipment, etc. 2 Cost of Fixed Assets The cost of the fixed asset (i.e., amount to be capitalized) includes all amounts expended to get the asset in place and ready for use. 3 Revenue & Capital Expenditures Revenue Expenditures are expenditures for fixed assets that benefit only the current accounting period (i.e., ordinary maintenance and repairs) Therefore, the costs are expensed. Capital Expenditures are expenditures that improve the asset or extend its useful life (are capitalized).
4 Depreciation Expense Normally, fixed assets have a useful life. The cost of the fixed asset must be allocated to depreciation expense over its useful life. Depreciation Expense (Debit) Accumulated Depreciation (Credit) 5 Factors in Computing Depreciation Expense Cost of the fixed asset Expected useful life (in years or UOP) Residual value the expected value of the asset at the end of its useful life. Depreciable Cost = Cost Residual Value Book Value = Cost Accumulated Depreciation
6 Depreciation Methods Straight-Line Units of Production Method Double-Declining Balance Method 7 Intangible Assets Assets that do not exist physically (i.e, they cannot be touched or seen). Patents, copyrights, trademarks, and goodwill. Intangible assets have value and useful live in excess of one year. Therefore, there must be an of allocation of cost to expense. This is called amortization.
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