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Key Accounting Issues in a Fixed Asset's Life Cycle

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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.

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Solution Summary

This solution discusses the three major stages of a fixed asset's life cycle and discusses one major issue which the company must address in each stage.

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The acquisition phase involves the decision to purchase the asset and the actual purchase and installation of the asset. On obvious accounting issue related to the asset acquisition is which costs related to the acquisition are capitalized (i.e., become part of the cost of the asset) and which costs are expensed. This is especially true when considering the purchase of raw land to be used as the foundation for a building or parking lot. For example, "FASB Statement No. 34, Capitalization of Interest Cost, requires that interest be capitalized when an asset is undergoing the ...

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