Financial Accounting: An Integrated Statements Approach, 2nd Edition

We capitalize the cost of improvements that extend the useful life of prop-

erty and equipment when incurred. These capitalized costs may include

structural costs, equipment, fixtures, floor and wall coverings and paint. All

repair and maintenance costs are expensed as incurred. We compute depre-

ciation using the straight-line method over the estimated useful lives of the

assets (three to 40 years).

The amount of each major class of fixed assets should be disclosed in

the balance sheet or in notes. The related accumulated depreciation should

also be disclosed, either by major class or in total. The fixed assets may

be shown at their book value (cost less accumulated depreciation), which

can also be described as their net amount. Alternatively, a single amount

may be presented in the balance sheet, supported by a separate detailed

listing. Fixed assets are normally presented under the more descriptive

caption of property, plant, and equipment. Property, plant, and equipment

may include construction in progress. This account accumulates the costs

associated with fixed assets under construction which have yet to be

placed into service. For growing companies, construction in progress can

be significant. For example, XM Satellite Radio Holdings Inc.recently disclosed

$92.5 million of satellite system construction in progress, which was 12% of its total

fixed assets.

Intangible assets are usually reported in the balance sheet in a separate section im-

mediately following the fixed assets. The balance of each major class of intangible as-

sets should be disclosed at an amount net of the amortization taken to date. Exhibit 10

is a partial balance sheet that shows the reporting of fixed assets and intangible assets

forMarriott International, Inc.

416 Chapter 9 Fixed Assets and Intangible Assets

Property, Plant, and Equipment: In Millions

Land $ 371

Buildings 642

Furniture and equipment 771

Timeshare properties 1,186

Construction in progress 100

$3,070

Less: Accumulated depreciation 681

$2,389

Intangible Assets:

Franchise and licenses $ 513

Goodwill 923

$1,436

Marriott International, Inc.

Partial Balance Sheet

December 31, 2004

Exhibit 10

Fixed Assets and

Intangible Assets in the

Balance Sheet

ANALYZING FIXED ASSETS

Business success for many firms is influenced by the utilization of fixed assets. Fixed

assets that sit idle do not generate revenue and, hence, do not provide a return on

investment. Thus, analysts examine the utilization of the fixed assets. The two

Analyze the utilization

of fixed assets.

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