What is a Fixed Asset?
A fixed asset is property with a useful life greater than one reporting period, and which exceeds an entity's minimum capitalization limit. A fixed asset is not purchased with the intent of immediate resale, but rather for productive use within the entity. Also, it is not expected to be fully consumed within one year of its purchase. A fixed asset appears in the financial records at its net book value, which is its original cost, minus accumulated depreciation, minus any impairment charges. Because of ongoing depreciation, the net book value of an asset is always declining. However, it is possible under international financial reporting standards to revalue a fixed asset, so that its net book value can increase.
A fixed asset does not actually have to be "fixed," in that it cannot be moved. Many fixed assets are portable enough to be routinely shifted within a company's premises, or entirely off the premises. Thus, a laptop computer could be considered a fixed asset (as long as its cost exceeds the capitalization limit).
Examples of Fixed Assets
There are many types of fixed assets, including buildings, computer equipment, computer software, furniture and fixtures, intangible assets, land, leasehold improvements, machinery, and vehicles.
Accounting for Fixed Assets
Fixed assets are initially recorded as assets, and are then subject to the following general types of accounting transactions:
Periodic depreciation (for tangible assets) or amortization (for intangible assets)
Impairment write-downs (if the value of an asset declines below its net book value)
Disposition (once assets are disposed of)
Presentation of Fixed Assets
Fixed assets appear on the balance sheet, where they are classified after current assets, as long-term assets. This line item is paired with the accumulated depreciation line item, resulting in a net fixed assets figure.
Is Inventory a Fixed Asset?
An inventory item cannot be considered a fixed asset, since it is purchased with the intent of either reselling it directly or incorporating it into a product that is then sold.
Terms Similar to Fixed Asset
A fixed asset is also known as Property, Plant, and Equipment.
Question 11 out of 1 pointsWhich of the following are criteria for determining whether to record an asset as a fixed asset?Answers:SelectedAnswer:a.must be long lived and used by the company in its normaloperationsa.must be long lived and used by the company in its normaloperationsb.must be tangible and an investmentc.must be short lived and tangibled.must be an investment and long lived
Question 21 out of 1 pointsA new machine with a purchase price of $109,000, with transportation costs of $12,000, installationcosts of $5,000, and special acquisition fees of $6,000, would have a cost basis ofAnswers:
Question 31 out of 1 pointsAccumulated DepreciationAnswers:
d.is a contra asset account
b.If using the double-declining-balance method, the total amount of depreciation expense during thelife of the asset will be the highest.c.Regardless of the depreciation method, the amount of total depreciation expense during the life ofthe asset will be the same.d.If using the units-of-activity method, it is possible to depreciate more than the depreciable cost.On June 1, Scotter Company purchased equipment at a cost of $120,000 that has a depreciable cost of$90,000 and an estimated useful life of three years or 30,000 hours.Using straight-line depreciation, calculate depreciation expense for the first year, which ends onDecember 31.
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The ratio measuring the number of dollars of sales earned per dollar of fixed assets is the
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When a company exchanges machinery and receives a trade-in allowance less than the book value,this transaction would be recorded with which of the following entries?
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