Discussion Thread: Entering Global Markets / Managing Global Operations Replies

Key Term and Why You Are Interested in It

The key term I have selected for this post is fixed assets. I opted for this category due to the sometimes complex nature of how assets are recorded and accounted for in a business. The intricacy that is applied to correctly allocating financial aspects such as method of payment and depreciation of the asset can be complicated as it will have an affect on a company’s financial reports. In more recent years at my job, I have learned a fair amount regarding fixed assets and the recording of them so I was interested to see what more I could learn through this research.

Explanation of Key Term

Fixed assets refers to “tangible property used in the operation of a business” according to Satterlee (2018) and can consist of furniture, buildings, machinery, and equipment, to name a few (p. 227). Fixed assets, with the exception of real estate since it appreciates, are depreciated over an extended period of time based on the normal life expectancy of the given property which can be beneficial to companies in that it provides a break on taxes. The determination of how to obtain fixed assets, when looking to branch out on an international level, takes some time and research as there can be a variety of options that can aid in offsetting initial start-up expenses for those companies. A few aspects to look at would be the benefit of merging with another company or whether or not to use an existing facility or build a new one (Satterlee, 2018, p. 227).

 

Major Article Summary

Fixed assets should be accounted for, and depreciated, in a manner that best suits the function of the property. Depreciation can be achieved in ways such as the straight-line method or even a declining balance method. In their analysis of fixed asset accounting implementation in Indonesia, Kantun, et al (2019) discuss how tangible fixed assets are crucial for the success of Micro, Small, and Medium Enterprises (MSMEs) in Indonesia (p. 1). In Indonesia, there are two sets of standards that are typically utilized to ensure proper recording of fixed assets. Those standards are the Financial Accounting Standards for Micro, Small, and Medium Enterprises (SAK EMKM) and the Indonesian Financial Accounting Standards (PSAK), both of which serve as guidelines for the decision making process (Kantun, et al., 2019, p. 2).

For the MSMEs in Indonesia, some of the aspects that need to be recorded appropriately are the acquisition price, method of acquisition, such as cash or credit, and determining which method of depreciation will be used. According to Kantun, et al (2019), the need to appropriately record fixed assets not only affects the reporting found in various financial records, the recording needs to be correct as it affects how the property will not only be used, but how it will be depreciated and eventually released once the timeline for use has expired (p. 2)  Just as it is important in the United States to follow the Generally Accepted Accounting Principles for various aspects of business, companies in Indonesia also have similar principles and standards they must follow in order to properly account for fixed assets.

 

Discussion

How the cited work relates to the explanation of key term

The cited work and the key term explanation are relatable in that fixed assets are a part of any established company and there is significant importance placed on the proper allocation of costs associated with any fixed assets. Part of the reporting process is to determine an appropriate depreciation schedule that suits the type of property being recorded as well as the method of depreciation. In the cited article, the author explains the importance of proper reporting of fixed assets as well as providing examples of the various methods that can be utilized. Another area the cited work relates to the explanation is that Kantun, et al (2019) makes a point to acknowledge several times that fixed assets are used for more than one accounting period (pp. 1-3). The length of time the asset will be used is based on the nature of the property and the length of time it is expected to be utilized within the company.

 

How cited work relates to remaining articles

The remaining articles relate to the cited work in several ways, generally referring to the allocation of fixed assets and how that affects financial information. According to Goldbach, et al (2019), net investment information can be unclear depending on depreciation rules or how fixed assets are composed (p. 62). The uncertainty of the net investments can cause financial reports to be incorrect, thus affecting budgeting for the future. Zhang, et al (2019) demonstrate how the construction of a high speed rail can drastically increase the total of fixed assets for China (p. 225).

According to An (2018), although fixed assets are capable of carrying a heavier debt load than intangible assets, fixed assets can be affected by corporate income tax creating a bias against them (p. 419). On the other hand, due to the higher level of initial capital requirements, entry barriers are created, making it difficult to trade or establish business internationally. (Wright and Zhu, 2018, p. 354). While there are similarities between the articles, there are also various viewpoints on how investments in fixed assets should be allocated for and the affect it can have on the financial reporting for the company.

 

References

 

An (2019) An, Z. On the Tax Bias Against Investments in Fixed Assets: Empirical Evidence from China. The World Economy; 42: pp. 419– 428. Retrieved from https://onlinelibrary-wiley-com.ezproxy.liberty.edu/doi/full/10.1111/twec.12671

Goldbach, S., Nagengast, A., Steinmuller, E., and Wamser, G. (2019). The Effect of Investing Abroad on Investment at Home: On the Role of Technology, Tax Savings, and Internal Capital Markets. Journal of International Economics, Volume 116, pp. 58-73. Retrieved from https://www-sciencedirect-com.ezproxy.liberty.edu/science/article/pii/S0022199618304069?via%3Dihub

Kantun, S., Djaja, S., & Kartini, T. (2019). Analysis of Fixed Assets Accounting Implementation in Micro, Small and Medium Enterprises (MSMEs) Units in Jember. IOP Conference Series. Earth and Environmental Science, 243(1) pp. 1-7. Retrieved from https://www.proquest.com/docview/2557604193?parentSessionId=z6%2ByAdR%2BljSC%2Fusi%2Fp9i962ZaAUjaTqMaDgf%2FbcPlUc%3D&pq-origsite=summon&accountid=12085

Satterlee, B.C. (2018). International Business with Biblical Worldview, (13th ed). McGraw-Hill.

Wright, J. and Zhu, B. (2018). Monopoly Rents and Foreign Direct Investment in Fixed Assets, International Studies Quarterly, Volume 62, Issue 2, pp. 341–356, Retrieved from https://academic-oup-com.ezproxy.liberty.edu/isq/article/62/2/341/5049186

Zhang, F., Wang, F., Ou, J., and Yao, S. (2019). Role of High-speed Rail on Social Fixed Assets Investments in China, Journal of Chinese Economic and Business Studies, 17:3, pp. 221-244. Retrieved from  https://www-tandfonline-com.ezproxy.liberty.edu/doi/full/10.1080/14765284.2019.1663697