Financial Education

U.S. GAAP requires that most noncurrent assets be carried at their historical cost (for example, the price paid in an acquisition), reduced by any depreciation accumulated. Historical cost will include invoice cost, shipping and installation costs, and any other costs that must be incurred to prepare the asset for use. In the case of assets being constructed by the company (directly or via contractor), an additional item included in historical cost is capitalized interest. This is a portion of the interest cost on borrowed funds during the construction time period.

Subsequent to acquisition, IAS 16 permits measurement of non-current assets at current cost, realizable value, or net present value. The balance sheet of a company that states non-current assets at fair value is not readily comparable to that of a company that uses historical cost. Even the noncurrent assets of two U.S. firms are not directly comparable because each firm will have acquired its assets at different times in different locations. Therefore, their balance sheets may reflect different historical costs for assets that have a similar fair value.

For more information, see all articles on: Accounting, Adjusting Reported Financial Statements, Financial Statement Analysis, Fundamental Analysis

See also:

Current Assets

The Current Ratio

Special Issues Related to International Assets

Assets

Primary Capital Markets