3. Nature of Fixed Assets
Fixed assets are long term or
relatively permanent assets
Fixed assets are tangible assets
because they exist physically.
They are owned and used by the
business and are not held for sale
as part of normal operations.
4. Classifying Costs
Is the purchased
item long-lived?
Yes
Is the asset used in
a productive
purpose?
No
Expense
Yes
Fixed Assets
No
Investment
5. Architects’ fees
Engineers’ fees
Insurance costs incurred
during construction
Interest on money
borrowed to finance
construction
Walkways to and around
the building
Buildings
7. Cost of Acquiring Fixed Assets Excludes:
Vandalism
Mistakes in installation
Uninsured theft
Damage during
unpacking and installing
Fines for not obtaining
proper permits from
government agencies
8. Nature of Depreciation
All fixed assets except land lose their capacity
to provide services. This loss of productive
capacity is recognized as Depreciation Expense.
Physical depreciation occurs from wear and tear
while in use and from the action of the weather.
Functional depreciation occurs when a fixed asset is
longer able to provide services at the level for
which it was intended, e.g., personal computer.
9. Gain or loss will be reported in the income
statement as Other Income or Other Loss.
When fixed assets are sold, the owner may
break even, sustain a loss, or realize a gain.
1. If the sale price is equal to book value, there
will be no gain or loss.
2. If the sale price is less than book value, there
will be a loss equal to the difference.
3. If the sale price is more than book value,
there will be a gain equal to the difference.
Sale of Fixed Assets
