Fixed Assets and Intangible Assets Are the amounts at which fixed assets are reported on the...
Fixed Assets and Intangible Assets Are the amounts at which fixed assets are reported on the balance sheet, their approximate market values as of the balance sheet date? Does this conflict with the historical cost principle? When is it appropriate for a company to report their fixed assets at market value?
Homework Answers
Answer: Fixed assets- Are the tangible and non-current assets of the company.
Examples:
- Plant
- Machinery
- Equipment
- Vehicle etc.
Cost Model- As per this model, fixed assets are reported at Historical cost minus accumulated depreciation and impairment losses associated with the asset. This model does not take into consideration the upward adjustment in the value of the asset based on fair market value. This is a simple method but does not show the accurate value of asset.
Market value model- This model is a revaluation model in which, asset is originally recorded at the cost but the carrying value may increase or decrease depending upon the fair market value of asset. If asset reduces its value, it can be written down.
The advantage of this approach is that fixed assets show their actual current market value. Revaluation model shows more accurate picture of the company rather than cost model.
When the economy is growing, there is demand in the economy and company's assets value is increasing then company should report the assets at the current market value.
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