Principles of Financial Accounting: Long Term Assets

Free Textbook Source

Principles of Financial Accounting

CC BY 4.0

Also called Fixed assets, plant assets, or Property, Plant, and Equipment (PP&E). Listed as noncurrent assets on the balance sheet.

Exception Legal costs to DEFEND an internally developed intangible (like a patent) CAN be capitalized.

Example Press cost $58,000, accumulated depreciation $28,800, book value $29,200.

Ask Does this cost extend the useful life of the asset or improve its capability beyond the original estimate?

Historical cost All costs to acquire the asset and put it into service.

Useful life Estimated period the asset will generate revenue. Salvage (residual) value: Estimated value at end of useful life.

Then Rate x Units used in period = depreciation for that period

Or Book value x Straight-line rate x 2

Formula (Net book value - New salvage value) / Remaining useful life

Debit Loss on Sale (if sold below book value)

Credit Gain on Sale (if sold above book value)

Natural resources are assets consumed when used Lumber, oil, minerals. Recorded at cost on the balance sheet as fixed assets.

Contra account Accumulated depletion (same role as accumulated depreciation).

Three key differences from depreciation 1. Straight-line method ONLY (no accelerated options) 2.

Physical obsolescence Asset deteriorates physically. Functional obsolescence: asset still works but is no longer useful for its intended purpo