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Chapter 16. Fixed Assets > Determining Original Cost

Determining Original Cost

If you acquire a new fixed asset—a telephone system, for example, or a new building—you need to account for that asset in your books. The asset's value contributes to your company's worth on its balance sheet. Furthermore, it's likely that you obtain the fixed asset to help you produce revenue over time, and you need to be able to match the asset's cost to the revenue it helps to produce. Therefore, it can be critically important to value the asset accurately if you are to understand your company's worth and profitability.

Among the issues involved in determining an asset's original cost are the choice of which costs to include, which assets to treat as capital expenses, and whether to use the actual expenditure or its replacement value as the cost of the asset.


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