In financial statements, long-lived assets are those financial resources, on which forthcoming benefits are expected for a period of several years.
Long Lived Assets include a handful of non-current assets as well, like intangibles, equipments and buildings. It is the Long Lived Assets which appear on the balance sheet of a company in the form of non-current assets.
Role of Long Lived Assets: The long lived assets play a major role in the making of financial reports and statements:
They offer economic benefits to a company, for future use. This means that long-lived assets are not to be used by the company during its current commercial operations and activities, but stored to meet the forthcoming financial requirements.
In the beginning, most of the long-lived assets appear to be a kind of purchase, made by the company.
Accounts To Be Considered:
A typical long-lived asset of a company takes into consideration, the following types of accounts:
Depreciation: As a traditional accounting method, Depreciation is rather a tricky activity, involving the distribution of a preceding capital expenditure to an annual capital expense. Depreciation exerts direct influence on the reported profits of a company. Characterized as a non-cash expense charge, Depreciation sets aside an annual cash amount in the form of Sinking Fund, for replacing and maintaining the fixed assets of a company in future.
Goodwill: A company’s goodwill is created when one company termed as the Buyer purchases another company, termed as the Target. During the purchase of the Target Company, all its assets and liabilities are re-assessed to their calculated fair value. Such calculation includes the intangible assets (license, trademarks, in-house research and developments, etc.) as well, which are not there on the balance sheet of the Target Company. However, it is the normal tendency of the accountants to consider both the tangible and intangible assets of the Target Company, at the time of assessing its total value. If it happens so that the Buyer Company makes extra payment than the estimated value of the target company, each additional payment is considered as the goodwill. So, Goodwill is known to be the ‘catch-all account’, as well as the amount overpayed by the buyer for the target.
Investments: Corporate investments include diverse accounting methods, and the management of a company enjoys full autonomy to select from the methods as per their requirements and discretions. When the parent company holds more than 50% shares of another company termed as Subsidiary, the accounts of the subsidiary company are merged with that of the parent organization.
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Last Updated on : 26th June 2013