Question

assume that two firms are both following generally accepted accounting principles. both firms commenced operations two years ago with $1 million of identical fixed assets, and neither firm sold any of those assets or purchased any new fixed assets. the two firms would be required to report the same amount of net fixed assets on their balance sheets as those statements are presented to investors. a. true b. false

Answer 1

The statement is False as when the balance sheets for the two companies are submitted to investors, they are not obligated to disclose the same amount of net fixed assets.

The Property, Plant, and Equipment classification is used to categorize fixed assets on a company's balance sheet. The cost of fixed assets is decreased on the balance sheet by depreciating them over the course of their useful lives in order to account for wear and tear. Both firms started off with $1 million worth of identical fixed assets when they first opened their doors two years ago, and neither one has sold or added any new ones. So, they are not supposed to report the same amount of fixed assets to investors since there is an absence of asset purchases.

Both current assets and fixed assets are listed on the balance sheet, with current assets intended for use immediately or for cash conversion and fixed assets for longer-term usage (more than one year).

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