Investments in Tangible and Intangible Assets

Investments in Tangible and Intangible Assets - Investments...

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Investments in Tangible and Intangible Assets Two major categories of long-term operating assets: property, plant, and equipment and intangible assets: 1. Property, plant, and equipment Long-lived, tangible assets acquired for use in a business Includes land, buildings, machinery, equipment, cars, trucks and furniture 2. Intangible assets Long-lived assets used in a business that have no physical substance Common intangible assets are patents, licenses, franchises, and goodwill Property, Plant & Equipment (Fixed Assets): Recording the acquisition of property, plant, and equipment When purchased: They are recorded at cost Includes all expenditures associated with acquiring them and getting them ready for their intended use (e.g. installation costs, transportation costs, etc.). Depreciation Expense Depreciation is the process of allocating the cost of plant and equipment to expense in the periods that are benefited from the use of the asset. The two most common and simple methods are straight-line, units-of-production, and declining balance: The straight-line method is the only method that results in the same amount of depreciation for each full year. cost – salvage value = annual depreciation expense estimated useful life (years) The units-of-production method allocates cost over the useful life measured in units of output or usage. Cost – Salvage value Number of units, hours Current year Total estimated life in x or miles produced or = depreciation expense units, hours, or miles used during the year Both methods require salvage value to be subtracted from the original cost in computing depreciation expense
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Investments in Tangible and Intangible Assets - Investments...

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