Question

Discuss how long-lived assets are reported and analyzed.

Answer 1

A long lived asset is any asset that a business expects to retain for at least one year. This definition can be broadened to include any asset that is expected to be retained for more than one accounting period

Presentation and reporting of Long-lived assets on the Balance Sheet

a. Plant assets are shown in the financial statements under “Property, Plant, and Equipment” and intangibles are shown separately under “Intangible Assets.”

b. Intangibles do not usually use a contra asset account like the contra asset account Accumulated Depreciation used for plant assets. Instead, amortization of these accounts is recorded as a direct decrease (credit) to the asset account.

c. Totals for the major classes of assets should be presented either within the balance sheet or in the notes to the financial statements. i. (i.e. land buildings, equipment) and accumulated depreciation by major classes or in total.

d. In addition, the depreciation and amortization methods used should be described and the amount of depreciation and amortization expense for the period disclosed.

e. It is also interesting to examine the statement of cash flows to determine the amount of property, plant, and equipment purchased and the cash received from property, plant, and equipment sold in a given year. The cash flows from purchases and dispositions of property, plant, and equipment are shown in the investing activities section of the statement of cash flows.

Analysis

a.Return on Assets: indicates the amount of net income generated by each dollar of assets.

b.Asset Turnover: indicates how efficiently a company uses its assets to generate sales.

c.Profit Margin: tells how effective a company is in turning its sales into income—that is, how much income each dollar of sales provides.