Question

What are the primary accounting issues involved in the establishment of a long-term asset, the depreciation of a long-term asset, and the sale of a long-term asset?.

Answer 1

Answer:-

Accounting issues involved in the establishment , Depreciation and Sale of long term asset:-

---Capitalisation of a long term asset is the most important aspect in accounting of long term asset.The accountant has to be very prudent in deciding which costs are to be capitalized and which costs are to be expensed off.

--Depreciation is another important aspect.It is based on the useful life of an asset under consideration which is  judgemental and subjective in nature.It is simply an estimate which can be revised going forward.

--Determination of salvage value at the end of life of an asset is another estimate which may be revised in future.It leades to change in the nature of accounting retrospectively.It requires adjusting the cost of asset.

--Profit or loss on sale of long term asset is to be calculated which is a complex aspect becase of change in method of depreciation(if any) or change in useful life.

--Depreciation rate may be revised in any year of use of long term asset which requires adjustments to the cost recorded in books retrospectively.

--Long term assets may require repairs,maintainence or spare parts replacement.The accountant here needs his own professional judgement on whether to expense off those expenses or to capitalize.If an expense increases useful life of an asset,it needs to be capitalized.