Respond To The Following In A Minimum Of 250 Words This Week

Respond To The Following In A Minimum Of 250 Wordsthis Week Focuses O

Respond to the following in a minimum of 250 words: This week focuses on short-term and long-term assets and cost determination for preparing financial statements, and financial reporting for leases. Discuss a fixed asset typically goes through the life cycle of acquisition, usage, and disposal. For each of these stages of the life cycle, discuss one key accounting issue related to a fixed asset the company must address. Depreciation methods, depletion of natural resources, amortization of intangible assets, and asset impairment.

Paper For Above instruction

The management and accounting of fixed assets are crucial to preparing accurate financial statements. Fixed assets, which include property, plant, and equipment, go through distinct stages during their life cycle: acquisition, usage, and disposal. Each stage presents unique accounting challenges that companies must address to ensure compliance with relevant accounting standards such as IFRS and GAAP.

During the acquisition phase, a primary issue involves determining the appropriate cost basis for the asset. This encompasses purchase price, taxes, transportation, handling, and any other costs necessary to bring the asset to its intended use. An accurate capitalization of these costs is essential because they form the basis for depreciation calculations over the asset's useful life. Misstating acquisition costs can lead to distorted financial ratios and misrepresentation of profitability.

In the usage phase, depreciation becomes the central accounting concern. Companies must decide on an appropriate depreciation method—such as straight-line, declining balance, or units of production—that best reflects the asset’s consumption of economic benefits. This choice impacts net income and asset valuation over time. Depreciation affects not only earnings, but also tax liabilities and asset book value, thus requiring careful selection and consistent application of the depreciation method.

At the disposal stage, the key issue involves determining the asset's sale or disposal value and recognizing any resulting gains or losses. If the asset is sold for less than its book value, an impairment loss must be recorded. Conversely, if it is sold for more, a gain must be recognized. Properly accounting for asset disposal ensures that the company's financial statements accurately reflect its assets and financial position.

Beyond the basic life cycle stages, companies must also address issues like asset impairment when the carrying amount exceeds recoverable amount, depletion of natural resources like minerals, amortization of intangible assets such as patents, and depreciation methods that accurately reflect usage. Proper management of these issues ensures transparency, compliance with accounting standards, and effective decision-making based on reliable financial data.

Overall, understanding and correctly addressing these key accounting issues at each stage of a fixed asset’s life cycle is vital for maintaining accurate financial records and making informed managerial decisions.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.
• Financial Accounting Standards Board (FASB). (2020). Accounting Standards Codification (ASC) 360: Property, Plant, and Equipment.
• International Financial Reporting Standards (IFRS). (2021). IAS 16: Property, Plant and Equipment.
• Gibson, C. H. (2017). Financial Reporting & Analysis. Cengage Learning.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
• U.S. Securities and Exchange Commission (SEC). (2021). Guidelines on Asset Impairment and Disclosure.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
• AccountingTools. (2023). Fixed Asset Accounting Basics. Retrieved from https://www.accountingtools.com/
• Investopedia. (2023). Fixed Asset Life Cycle. Retrieved from https://www.investopedia.com/