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    Define operating assets; discuss depreciation methods

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    1. What are several examples of operating assets? Why are operating assets essential to a company's long-term future?

    2. What factors may contribute to the decline in usefulness of operating assets? Should the choice of depreciation method be related to these factors? Must a company choose just one method of depreciation for all assets?

    3. Assume that your local bank gives you a $1,000 loan at 10% per year but deducts the interest in advance. Is 10% the "real" rate of interest that you will pay? How could the true interest rate be calculated?

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    Solution Preview

    1. Operating assets mostly consist of plant, property and equipment. They are assets needed to assist in the production of goods for sale to customers, but they are not consumed in the process. Examples would include a building, computers and desks. They are long term (or long lived) assets used in normal business operations. Intangible assets can also be operating assets; example is a patent. For the future of a company, operating assets are necessary and essential. Examples: without a building for manufacturing, it would be impossible to produce goods; without a computer, it would be hard to run an internet business; without a patent, product sales might have to stop. http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/Operating-Assets-Defined.topicArticleId-21081,articleId-21074.html

    2. Factors which could contribute to the ...

    Solution Summary

    In a 538 word solution, the respone explains what are operating assets, then discusses the useful lives and depreciation methods. Six examples are given of factors which could contribute to the decline in usefulness of operating assets. The real rate of interest on a loan where the interest is deducted at the front is explained and calculated.