Chapter 08 - Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
Reporting and Interpreting Property,
Plant, and Equipment; Natural
Resources; and Intangibles
ANSWERS TO QUESTIONS
Long-lived assets are noncurrent assets, which a business retains beyond one
year, not for sale, but for use in the course of normal operations. Long-lived assets
include land in use, plant and equipment, natural resources, and certain intangibles
such as a patent used in operating the business. Long-lived assets are acquired
because of the future use that is expected of them. Thus, they may be thought of
as a bundle of future services to be used over a period of time to earn revenue. As
those services are used, as in the case of a machine, the cost of the asset is
allocated as a periodic expense (i.e., matched with revenue).
The fixed asset turnover ratio =
[(Beginning net fixed asset balance + Ending net fixed asset balance)
This ratio measures how efficiently a company utilizes its investment in property,
plant, and equipment over time.
The ratio can also be compared to the ratio for the
Long-lived assets are classified as follows:
Tangible long-lived assets—assets that are tangible (i.e., have physical
substance) and long-lived (i.e., beyond one year); they are acquired for use in
the operation of a business and are not intended for resale. They are
comprised of three different kinds of assets:
Land—not subject to depreciation.
Plant and equipment—subject to depreciation.
Natural resources—mines, gravel pits, and timber tracts. Natural
resources are subject to depletion.
Intangible long-lived assets—assets held by the business because of the
special valuable rights that they confer; they have no physical substance.
technology, and goodwill. Intangible assets with definite lives are subject to