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Accounting II: Long-lived Assets

At least 600 words.

What is included in the cost basis of a long-lived asset? Explain for at least two types of such assets.

What sources are reliably used to estimate an asset's useful life?

How is the appropriate depreciation method determined?

Has the concept of asset impairment changed accounting for long-lived assets under the historical cost model? If so, how?

Solution Preview

What is included in the cost basis of a long-lived asset? Explain for at least two types of such assets.

To put it simply: all the costs of placing it into service. The FASB codification, the authoritative literature on US GAAP, says that the historical cost of long-lived assets is "historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use" (FASB 835-20-05-1). Those costs may include a host of expenditures such as the legal costs to acquire it, the architect fees to draw it, testing, delivery, installation, in-bound shipping, and sales taxes. The exact list will vary by asset but can include things as far reaching as demolishing a building (part of cost of getting land ready for use and so part of the cost of land).

What sources are reliably used to estimate an asset's useful life?

The FASB codification, the authoritative literature on US GAAP, that the cost of long lived assets "be spread over the expected useful life" and that this process is ...

Solution Summary

Your tutorial is 618 words plus three references to the FASB codification and one website to assist you. The discussion mentions the rule for what is included in historical cost, how useful lives are determined, how the method is selected and why impairment is not really a departure from historical cost concepts.

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