Operating Assets

Assets

Learning Objectives: What are assets in accounting? Types of Assets Classification of Assets Definition properties, things and receivables having certain value owned by the business are called assets. Examples Following are some examples of assets. Cash, Debtors, Stock, Accounts Receivable, Prepaid Expenses, Land, Building, plant, Machinery, Motor Vehicles, Furniture, Fixture, Goodwill, Patents, Copy Rights, Trade …

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Operating Assets

Operating Assets – Definition The term operating assets is used to identify the broad category of long-lived assets that are used to produce goods or services. This group includes not only tangible assets (often known as property, plant, and equipment or fixed assets) but also those that exist only as intangible rights (such as trademarks, …

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Exchange of similar nonmonetary operating assets

Although some accountants believe exchanges of similar assets should be treated the same as exchanges of dissimilar ones, GAAP treat these transactions as being substantively different. That is, the exchange is viewed as a restructuring of the firm’s productive capacity rather than a disposal and acquisition. Consequently, GAAP prescribe a treatment for these exchanges that …

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What are identifiable and unidentifiable intangible assets?

Definition Identifiable intangibles are assets that are derived from a specific right or ability. Most of them are created by registration with government authority or by contract. Types Some major types of identifiable intangible assets are listed below: Patent—unique right to manufacture a product or to use a process; protected by a legal authority for …

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Capitalization of interest cost during the construction of assets

Most accountants treated the acquisition of an asset and the obtaining of funds to pay for the acquisition as separate and unrelated events. GAAP departs from that convention only in terms of interest incurred while the asset is under construction and excludes interest incurred during its useful life. That is, interest incurred in preparing the …

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Goodwill

Explanation Goodwill is reported in financial statements only if its valuation can be supported by a transaction involving the purchase of a firm. However, the existence of this unidentifiable asset should not be ignored by the potential buyer or seller in negotiating the amount to be paid for the firm. Even though the estimated numbers …

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Accounting objectives for the use and disposal of operating assets

The usefulness of most operating assets is consumed as they are applied to the production of goods or the providing of services. This consumption is known as either depreciation, depletion, or amortization, according to the type of asset that is being used. The actual processes of the consumption are dependent upon a number of factors, …

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units of production method of depreciation

Explanation If it is economically feasible to keep records of the quantity of output produced from an asset, and if the results of using that information are materially different from those achieved under a time-related method, the firm might use the Units-of-output or units of production method to compute depreciation expense. The method first computes the average …

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Declining balance method of assets depreciation

Under the declining balance method, depreciation is charged on the book value of the asset, and the amount of depreciation goes on decreasing every year. Explanation As alternative systematic allocation schemes, several declining balance methods of computing depreciation expense have been developed. They determine the annual charge by multiplying a percentage rate by the book …

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Depreciation and changes in estimates and method

Because of the estimates and judgments involved in computing depreciation (as well as amortization and depletion), it is inevitable that facts in subsequent years will show that some of the original projections and assumptions were incorrect. Changes in service life If the originally selected service life of an asset turns out to be sufficiently incorrect …

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Composite depreciation

Explanation The effort of calculating depreciation expense for a large collection of assets often can be reduced without sacrificing a material amount of accuracy by aggregating the assets and treating them as if they are a single asset. The group approach to aggregation is applied to collections of assets that share similar service lives and …

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Operating assets and problems under cost allocation approach

Depreciation is based on the cost allocation concept because of the unreliability of interim measures of value. This use of an approximation causes several problems, four of which are discussed below. Actual life exceeds estimated life Because depreciation allocates the full amount of the depreciable base over an estimated life, it is fairly common to …

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