Distinguishing Features of Long Term Assets
Long-term assets are assets that are typically used in the production process of a company and have a useful life of more then one year.

Long-term assets typically include property, plant (building and land) and equipment (PP&E). These assets are reported at cost (book value) at initiation, and are depreciated over time (except for land). Once an asset has started to depreciate, it is said to be reported at its carrying value. If an asset becomes obsolete before its time or it has lost its revenue-generating ability, it must be written off and this is referred to as asset impairment.

Property, Plant and Equipment (PP&E)
The cost of PP&E includes all costs related to their acquisition and all necessary expenses required to make them useful for the company.

Example 1:
Company ABC purchased a machine for $2m. To get this machine ready for use, it paid a total of $200,000 for transportation and insurance, brokerage fees, set-up costs and legal fees, among others. So the total cost is $2.2m.

Journal entry:

Company ABC bought a piece of land for $2m and an additional $100,000 went to expenses resulting from the search for the land, real estate commission, title transfer, surveying and landscaping. Total cost is $2.1m.

Journal entry:

Company ABC incurred a total of $20m in additional costs to build on this land. This included, among others, costs for materials, labor, construction plans and interest cost incurred during the construction phase.

Journal entry:



Depreciation Accounting

Related Articles
  1. Investing

    How to Evaluate a Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  2. Investing

    Explaining Capitalized Cost

    A capitalized cost is an expense associated with a fixed asset that is added to the basis of that asset and expensed over its depreciable life.
  3. Investing

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  4. Managing Wealth

    What's an Asset?

    An asset is a resource with economic value.
  5. Investing

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  6. Investing

    Top 4 Things That Determine a Home's Value

    Your house depreciates over time, while the land beneath it is likely to do the opposite.
  7. Investing

    There Are More Ways To Invest In Land Than You Think

    You don't have to have a huge amount of capital to invest in land. You have many other options, including land-related ETFs and ETNs.
  8. Investing

    Operating Performance Ratios

    Learn about the fixed-asset turnover, sales/revenue per employee, operating cycle and dividend payout ratio.
  9. Investing

    What is a Real Asset?

    A real asset is a physical asset that has value.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center