Fixed Assets & Intangibles
Chapter 9
Nature of Fixed Assets
Are long-term or relatively permanent
assets
They are Tangible assets because they
exist physically.
They are owned and used by the
business
Not offered for sale as part of the
normal operations
Consists of
If the purchased item is long-lived, then it should be capitalized.
It should appear on the balance sheet as an asset.
If not cost is reported as an expense on the income statement
Cost of Acquiring Fixed Assets
Land
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Purchase price
Sales taxes
Permits
Title fees
Surveying fees
Removing unwanted
buildings
paving
Cost of Acquiring Fixed Assets
Building
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Architects’ fees
Engneers’ fees
Insurance cost
Interest on
construction
reconditioning
Cost of Acquisition
Land Improvement
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Trees and shrubs
Fences
Outdoor lighting
Paved parking areas
Cost of Acquisition
Machinery &
Equipment
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Sales taxes
Freight
Installation
Repairs
reconditioning
Notes
Only costs necessary for preparing a long-lived
asset for use should be included as a cost of the
asset.
Unnecessary costs that do not increase the
asset’s usefulness are recorded as an expense
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Vandalism
Mistakes in installation
Uninsured theft
Damage during unpacking and installing
Fines for not obtaining proper permits from
governmental agencies
Capital & Revenue
Expenditures
Once a fixed asset has
been acquired and
placed in service:
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Expenditures may be
incurred for ordinary
maintenance and repairs.
Expenditures may be
incurred for improving an
asset or extraordinary
repairs that extend the
asset’s useful life.
Ordinary Maintenance
and Repairs:
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Expense in the current
period
Revenue Expenses
Revenue Expenditure
Suppose that a tune up is done the delivery
truck for a cost of $500 paid in cash.
Account
Repairs and maintenance
expense
Cash
Debit
$500
Credit
$500
Capital Expenditures
Asset Improvements:
Improve an asset
Capital expenditures
Recorded as increases in the fixed
asset account.
Changes the depreciation for the
remaining life of the asset
Capital Expenditures
Suppose that a new lift placed in the
delivery truck for a cost of $5,500 paid in
cash.
Account
Delivery Truck
Cash
Debit
$5,500
Credit
$5,500
Capital Expenditures
Extraordinary repairs
An expenditure that increases the useful
life of an asset beyond its original estimate.
 Debited to the related accumulated
depreciation account.
 Considered capital expenditures
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Capital Expenditures
Suppose that a new engine is placed in the
delivery truck for a cost of $7,000 paid in
cash.
Account
Accumulated Depreciation- Truck
Cash
Debit
Credit
$7,000
$7,000
Leasing Assets
Lease - is a contract for the use of an
asset for a stated period of time.
Parties to a lease
Lesser – party who owns the asset
 Lessee – party to whom the rights to use
the asset are granted by the lesser
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Obligated to make periodic rent payments for
the lease them
Leasing Assets
Types of Leases
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Capital lease
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Is accounted for as if the lessee has purchased the
asset.
Debit the asset account for the fair market value of the
asset
Credits the long-term lease liability account
Asset is written off as expense over the life of the capital
lease.
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Amortization expense
Operating Lease
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Lessee records the payments under an operating lease
by debiting rent expense and crediting cash.