Equipment and Historical Cost
Fixed assets, also known as non-current or tangible assets, include property, plant, and equipment. Fixed assets, according to International Accounting Standard (IAS) 16, are long range assets whose cost can be measured reliably.
The equipment's cost is calculated by adding the item's purchase price, or historical cost, to the other costs related to acquiring the asset. These additional costs can include import duties and deductible trade discounts and rebates.
Historical cost also includes delivery and installation of the asset, as well as the dismantling and removal of the asset when it is no longer in service. Equipment is subject to depreciation. Depreciation is a periodic reduction in an asset's value. It is disclosed on the income statement and appears as a contra-asset account on the balance sheet.
The cost of equipment includes all costs paid to put the asset into use.
Equipment is listed in a separate section within the balance sheet.
Equipment and the Balance Sheet
Since accounting standards state that an asset should be carried at the net book value, equipment is listed on the balance sheet at its historical cost amount. The cost is then reduced by accumulated depreciation to arrive at a net carrying value or net book value. A company is free to decide what depreciation method to use on the equipment.
Sale of Equipment
When an equipment is sold, the sale of the asset can trigger a gain or a loss, depending on the difference between the equipment's net book value and its sale price. As with other assets, gain or losses on sales of equipment are disclosed on the income statement as a reduction or addition to income for the period.