Business Administration 2257 Chapter Notes -Westjet, Fixed Asset
Course CodeBusiness Administration 2257
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CHAPTER 9 – REPORTING AND INTERPRETING PROPERTY, PLANT, AND
EQUIPMENT; NATURAL RESOURCES; AND INTANGIBLES
Long-term asset: Also long-lived assets or capital assets. Tangible and intangible
resources owned by a business and used in its operations over several years.
1. Tangible assets. Physical substance. Property, plant and equipment. Three kinds:
a. Land. If it has material value separate item on balance sheet. Never
b. Buildings, fixtures, and equipment. Reported as separate item on balance
c. Natural resources.
2. Intangible assets. No physical substance. Often arise from intellectual effort and are
known as intellectual property. Ex: copyrights, patents, software, franchises.
Fixed asset turnover ratio used for answering the question: how effectively is
management utilizing its property, plant and equipment or fixed assets to generate
revenue? High rate usually = effective management.
Fixed asset turnover = Net sales (or operating revenue)
Average Net Fixed Assets
Costs are capitalized when they are recorded as assets instead of as expenses in the
Acquisition cost: Net cash equivalent amount paid or to be paid for the asset.
•As a basket purchase of assets
Capitalized interest: Represents interest on borrowed funds directly attributable to
construction until the asset is substantially complete.
Basket purchase: An acquisition of two or more assets in a single transaction for a single
Expenditures made after an asset is acquired:
1. Ordinary repairs and maintenance:
•Expenditures for normal operating upkeep of long-term assets.
•Recorded as an expense.
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