fixed asset

Examples of fixed asset in the following topics:

• Return on Assets

  • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
  • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
  • $Return\quad on\quad Total\quad Fixed\quad Assets\quad =\quad \frac { Net\quad Income }{ Average\quad of\quad Fixed\quad Assets }$
  • Return on Total Fixed Assets equals the business's net income divided by the average value of the business's total fixed assets for the accounting period.
  • You calculate the average value of the business's fixed assets by adding the value of the business's total fixed assets at the beginning of the accounting period to the value of the total fixed assets at the end of the period.

• Asset Turnover Ratio

  • $Fixed\quad Asset\quad Turnover\quad =\quad \frac { Net\quad Sales }{ Average\quad Net\quad Fixed\quad Assets }$
  • The fixed-asset turnover ratio is calculated in a similar manner, except instead of focusing all of the business's assets, the ratio is calculated using the business's fixed assets.
  • This ratio measures how well a business is using its fixed assets to generate sales.
  • To calculate the fixed asset turnover ratio, divide the total sales for the accounting period by the average fixed asset balance for the accounting period.
  • The average fixed asset balance equals the beginning balance of fixed assets for the period plus the ending balance of fixed assets for the period, then dividing by two.

• Types of Long-Lived Assets

  • The two major asset classes are tangible assets (e.g., buildings and equipment) and intangible assets (e.g. copy rights).
  • Tangible assets include fixed assets, such as buildings and equipment.
  • Fixed assets-- also referred to as property, plant, and equipment-- are purchased for continued and long-term use in generating profit for a business.
  • Fixed assets include asset land, buildings, machinery, furniture, tools, IT equipment-- e.g. laptops-- and certain limited resources-- e.g. timberland and minerals.
  • They are listed under the asset portion of the balance sheet.

• Loss Restoration

  • Fixed asset values can be revised to reflect an increase or decrease in value; upward revisions can recover earlier impairment losses.
  • Under International Financial Reporting Standards, once a fixed asset has been revalued its book value can be adjusted periodically to market value using the cost model or the revaluation model.
  • The cost model records an asset at its historical cost.
  • If an asset becomes impaired and an impairment loss results, the asset can fall under the revaluation model that allows periodic adjustments to the asset's book value.
  • After an asset have been revalued, the asset's depreciation expense must change to reflect the new value.

• Cost of Equipment

  • Fixed assets, also known as non-current or tangible assets, include property, plant, and equipment.
  • Fixed assets, according to International Accounting Standard (IAS) 16, are long range assets whose cost can be measured reliably.
  • Historical cost also includes delivery and installation of the asset, as well as the dismantling and removal of the asset when it is no longer in service.
  • Depreciation is a periodic reduction in an asset's value.
  • The cost of equipment includes all costs paid to put the asset into use.

• Basic Components of Asset Valuation

  • This is used for assets whose carrying value is based on mark-to-market valuations; for fixed assets carried at historical cost (less accumulated depreciation), the fair value of the asset is not used.
  • The reason for not using the book value of the old asset to value the new asset is that the asset being given up is often carried in the accounting records at historical cost.
  • In the case of a fixed asset, its value on the balance sheet is historical cost less accumulated depreciation, or book value.
  • The book value of a fixed asset asset is its recorded cost less accumulated depreciation.
  • An old asset's book value is usually not a valid indication of the new asset's fair market value.

• Terminology of Accounting

  • Two major asset classes are intangible assets and tangible assets.
  • Intangible assets are identifiable non-monetary assets that cannot be seen, touched or physically measured, are created through time and effort, and are identifiable as a separate asset.
  • Tangible assets contain current assets and fixed assets.
  • Current assets include inventory, while fixed assets include such items as buildings and equipment.
  • If liability exceeds assets, negative equity exists.

• Current Guidelines for Revenue Recognition

  • Transactions that result in the recognition of revenue include sales assets, services rendered, and revenue from the use of company assets.
  • Sales of assets other than inventory, typically recognized at point of sale.
  • Revenue from the use of the company's assets such as interest earned for money loaned out, rent for using fixed assets, and royalties for using intangible assets, such as a licensed trademark.
  • Revenue is recognized due to the passage of time or as assets are used.

• Impact of Depreciation Method

  • Depreciation is a required expense for all business with fixed assets, excluding land.
  • When using the straight-line method, a company charges the same depreciation expense every accounting period throughout an asset's useful life, so the effect is a stable and uniform reduction in revenues and asset values in every accounting period of the asset's useful life.
  • Sum-of-years-digits depreciation is determined by multiplying the asset's depreciable cost by a series of fractions based on the sum of the asset's useful life digits.
  • This method records higher amounts of depreciation during the early years of an asset's life and lower amounts during the asset's later years.
  • To do this, divide 100 per cent by the number of years of useful life of the asset.

• Reporting Assets

  • Costs associated with fixing used property so it can be used by the company are included in the acquisition costs.
  • The first is the cost of the asset.
  • This period is known as the asset's useful life.
  • To insure that the balance sheet reflects the accurate value of its assets, a business will not decrease the value of each asset as it depreciates.
  • A way an asset may become more valuable is if the business somehow enhances the asset's ability to provide services.