Blueprint Problem: Fixed assets and declining method Nature and Measurement of Fixed Assets A noncurrent asset that is used in the normal operations of a business to generate revenue is called a fixed asset. The historical cost principle is applied to fixed assets. A fixed asset should be recorded at its cost, which includes any expenditures necessary to prepare it for its intended use. The cost of a fixed asset, except for the cost of land is allocated as an expense. When multiple assets are purchased as a group and each asset has a different estimated life, the cost of each asset must have a separate ledger account. In the case of a group purchase, the cost must be allocated among the assets acquired on the basis of each asset's proportion of the total fair market value of the assets acquired Fixed assets are reported in the noncurrent assets section of the balance sheet Fixed assets with different useful lives but purchased as a group must have separate ledger accounts Land has an indefinite life and is classified as a fixed asset Assume that a building and the land it is situated on, along with a dump truck, are purchased at an auction. The three assets were purchased together for a price of $200,000. The fair market value of the assets are shown in the table below. Determine each asset's percentage of fair market value total. Then, apply that percentage to the group purchase cost to determine the allocated cost to be recorded for each asset Fair market value Percent of total Allocated cost Land $192,000 Building 112,000 16,000 Truck Total 100% $200,000