Imagine you are the senior accountant in the Fixed Assets department at your org

Question

Imagine you are the senior accountant in the Fixed Assets department at your organization, and management is undecided as to whether it should construct its fixed assets or purchase such assets from an outside source. You are responsible for preparing a report to management, highlighting the advantages and disadvantages of self-constructed assets. Suggest to management two (2) advantages of purchasing the assets from an outside organization, as opposed to constructing the assets internally. Justify your response.

Imagine that management is considering a nonreciprocal transfer of an old asset. Determine the key arguments for and against the accounting treatment of a nonreciprocal transfer. Select a position for or against the accounting treatment, and explain the method that reflects the best accounting practice.

Explanation / Answer

if we construct the fixed assets it requires high resources to complete it. but it helps us to carry the activities for an undifinite future periods. there wont be nay problems related to short term or long term. they will be with us all the times and we can use them when ever we are in need. an it also helps us to minimize the tax payments, the market value of the fixed assets may increase by the time.

if we go with purchasing fixed assets, it occurs immediate cashout flow and a series of payments. we can return them once we completed our task. if we need them in future again we should pay amounts and borrow them.

the old assets are carries lesser value in the balance sheet, but when it comes to performance they are good. then instead of disposing them, it is better to hold them and use them at the needed times.

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