Long-term assets, also known as non-current assets, are resources that a company expects to use in its operations for more than one year. These assets are not meant for immediate sale but are vital for the company's long-term productivity and revenue generation. They can include:
Property, Plant, and Equipment (PP&E): These are tangible assets used in the production or supply of goods and services, such as buildings, machinery, vehicles, and land.
Intangible Assets: These are non-physical assets without a definite physical form, such as patents, copyrights, trademarks, and goodwill.
Investments: Long-term investments in stocks, bonds, or other companies' securities that are not intended for immediate sale.
Deferred Charges: Costs that have been paid but will be expensed over time, such as prepaid expenses and deferred tax assets.
Impairment refers to a reduction in the value of a company's assets, either due to obsolescence, damage, or a decline in the asset's ability to generate future cash flows. When an asset's carrying value exceeds its recoverable amount (the higher of fair value less costs to sell and value in use), the asset is considered impaired, and the company must recognize a loss by reducing the asset's carrying amount on the balance sheet and recognizing an impairment expense on the income statement.
Impairment testing is a crucial part of financial reporting, ensuring that assets are carried at no more than their recoverable amount. It helps maintain transparency and accuracy in a company's financial statements, reflecting the true value of its assets.
Property, Plant, and Equipment (PP&E): These are tangible assets used in the production or supply of goods and services, such as buildings, machinery, vehicles, and land.
Intangible Assets: These are non-physical assets without a definite physical form, such as patents, copyrights, trademarks, and goodwill.
Investments: Long-term investments in stocks, bonds, or other companies' securities that are not intended for immediate sale.
Deferred Charges: Costs that have been paid but will be expensed over time, such as prepaid expenses and deferred tax assets.
Impairment refers to a reduction in the value of a company's assets, either due to obsolescence, damage, or a decline in the asset's ability to generate future cash flows. When an asset's carrying value exceeds its recoverable amount (the higher of fair value less costs to sell and value in use), the asset is considered impaired, and the company must recognize a loss by reducing the asset's carrying amount on the balance sheet and recognizing an impairment expense on the income statement.
Impairment testing is a crucial part of financial reporting, ensuring that assets are carried at no more than their recoverable amount. It helps maintain transparency and accuracy in a company's financial statements, reflecting the true value of its assets.
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