Chapter 7, Problem 1DQ

To determine

Operating Assets:

The assets which are used by the company for a long period for its own use for the purpose of generating profits but not held for sale in the ordinary course of business are known as operating assets.

Non-Operating Assets:

The assets which are used not for long but are used for generating profits by selling in the ordinary course of business.

The difference between operating assets and non-operating assets. Also analyze the benefit of operating assets to the company.

Answer to Problem 1DQ

The operating assets are different from non-operating assets due to their time period i.e. operating assets are for long period and non-operating are for short period.

The benefit of operating assets to the company is in the terms of economic benefits which are given over a time of assets used in the company.

Explanation of Solution

The operating assets are different from non-operating assets as they are used by the company in the long run and these assets are not for sale in the ordinary course of business like the non-operating assets.

The benefits which are provided by the operating assets are in the form of economic benefits which the company got over the time of life of asset used in the ordinary course of business. These assets are recorded in the books at the cost i.e. capitalized which means asset for long period. After such capitalization, the cost is divided over the life of asset and such part of cost is recognized as an expense or, says, benefit for the company by the name of depreciation in the income statement.