Fair market value is the price received for an item sold in the normal course of business (not at a forced liquidation sale). This cost is objective, verifiable, and the best measure of an asset’s fair market value at the time of purchase. When a plant asset is purchased for cash, its acquisition cost is simply the agreed on cash price. When a company acquires a plant asset, accountants record the asset at the cost of acquisition (historical cost). On the balance sheet, these assets appear under the heading “Property, plant, and equipment”. Common plant assets are buildings, machines, tools, and office equipment. To be classified as a plant asset, an asset must: (1) be tangible, that is, capable of being seen and touched (2) have a useful service life of more than one year and (3) be used in business operations rather than held for resale. Intangible assets have no physical characteristics that we can see and touch but represent exclusive privileges and rights to their owners. Tangible assets have physical characteristics that we can see and touch they include plant assets such as buildings and furniture, and natural resources such as gas and oil. Long-lived assets consist of tangible assets and intangible assets. Plant assets are long-lived assets because they are expected to last for more than one year. Property, plant, and equipment are often called plant and equipment or simply plant assets. Previous chapters discussed current assets. On a classified balance sheet, the asset section contains: (1) current assets (2) property, plant, and equipment and (3) other categories such as intangible assets and long-term investments. It is the efficient use of these resources that in many cases determines the amount of profit corporations will earn. These resources are necessary for the companies to operate and ultimately make a profit. Property, plant, and equipment (fixed assets or operating assets) compose more than one-half of total assets in many corporations.
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