Unit8FixedAssets&IntangibleAssetsIFixedAssetsIntangibleAssets
Unit 8 Fixed Assets & Intangible Assets Ⅰ Fixed Assets Ⅱ Intangible Assets
IFixedAssetsFixed assets are long-term or relatively permanentassets like land, building, equipment, etc.They're long-lived assets because their useful livesare expected to last for more than one year.Fixed assets are critical to a company's successbecause they determine the company's capacity andperformance. Many companies have substantialinvestments in fixed assets22025/12/3
2 2025/12/3 Ⅰ Fixed Assets ⚫ Fixed assets are long-term or relatively permanent assets like land, building, equipment, etc. ⚫ They’re long-lived assets because their useful lives are expected to last for more than one year. ⚫ Fixed assets are critical to a company’s success because they determine the company’s capacity and performance. Many companies have substantial investments in fixed assets
1.AcquisitionforFixedAssetsThe acguisition costis recorded at historicalcosttogettheminplaceandreadytouse,including all expenditures reasonable andnecessary,suchaspurchaseprice,freightcostspaidbythepurchaser,installationcostsDr.FixedAssetsCr.Cash32025/12/3
3 2025/12/3 1. Acquisition for Fixed Assets ⚫ The acquisition cost is recorded at historical cost to get them in place and ready to use, including all expenditures reasonable and necessary, such as purchase price, freight costs paid by the purchaser, installation costs. Dr. Fixed Assets Cr. Cash
Fixedassetsareacquiredthroughpurchases,bartertrade,capitaltransfersinkind,financiallease,improvementoffixedassetsandnatural growth ofthosenatural assetsthatyieldrepeat products2025/12/3
4 2025/12/3 Fixed assets are acquired through purchases, barter trade, capital transfers in kind, financial lease, improvement of fixed assets and natural growth of those natural assets that yield repeat products
DPurchaseofaBuilding/Plant.When an existing building is purchased, its costincludesthepurchasepriceplus all repair andmaintenance costs required to put in usablecondition.Whenabusiness constructsitsownbuilding,thecostincludes allreasonable expenditures,suchasthoseformaterials,labor,andotherindirectcosts,architecturalfees,legalfees,insuranceduringconstructionandbuildingpermits52025/12/3
5 2025/12/3 ①Purchase of a Building/Plant ⚫ When an existing building is purchased, its cost includes the purchase price plus all repair and maintenance costs required to put in usable condition. ⚫ When a business constructs its own building, the cost includes all reasonable expenditures, such as those for materials, labor, and other indirect costs, architectural fees, legal fees, insurance during construction and building permits
②PurchaseofLandThecostoflandpurchasedincludescashpriceforpurchase,commissionforreal estateagents,legal feesaccruedtaxespaidbythepurchaser,cost of training, clearing and gradingassessment fee.62025/12/3
6 2025/12/3 ②Purchase of Land ⚫ The cost of land purchased includes cash price for purchase, commission for real estate agents, legal fees, accrued taxes paid by the purchaser, cost of training, clearing and grading assessment fee
③PurchaseofEquipmentThecostofequipmentincludesall expendituresingettingitreadyforuse,suchasinvoicepriceless cashdiscounts,freightandtransportationinsurance,tax,installationcost,testfees2025/12/3
7 2025/12/3 ③Purchase of Equipment ⚫ The cost of equipment includes all expenditures in getting it ready for use, such as invoice price less cash discounts, freight and transportation, insurance, tax, installation cost, test fees
2.DepreciationforFixedAssetsWhat?Itis a process of allocating the cost ofafixed assetoveritsuseful/servicelife.Why?The wear and tear on fixed assets that have longlivesexistsSuchcost allocationisdesignedtoproperly matchexpenseswithrevenues.Scope:Depreciation isrecorded onall fixedassetsexceptland.82025/12/3
8 2025/12/3 2.Depreciation for Fixed Assets ⚫ What? It is a process of allocating the cost of a fixed asset over its useful/service life. ⚫ Why? The wear and tear on fixed assets that have long lives exists. Such cost allocation is designed to properly match expenses with revenues. ⚫ Scope: Depreciation is recorded on all fixed assets except land
How?Several depreciation methodsEffectDepreciationaffectsthebalancesheetthroughaccumulateddepreciation andincome statementthrough depreciation expense92025/12/3
9 2025/12/3 ⚫ How? Several depreciation methods. ⚫ Effect Depreciation affects the balance sheet through accumulated depreciation and income statement through depreciation expense
(1)FactorsDeterminingDepreciation3SalvageValueUsefulEstimateofLifeCostasset'sEstimateofremainingAcquisitiotheexpectedvaluewhenitnservicelifeofisdisposed.costtheasset102025/12/3
10 2025/12/3 (1)Factors Determining Depreciation Cost Useful Life Salvage Value 1 2 3 Estimate of asset’s remaining value when it is disposed. Estimate of the expected service life of the asset Acquisitio n cost