Chapter 8, Problem 1Q

Define long-lived assets. Why are they considered to be a “bundle of future services”?

To determine

Describe the term long-lived assets and the reason behind considering them to be a “bundle of future services’.

Explanation of Solution

Long-lived assets:

Long-lived assets refer to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue. Some of the examples of long-lived assets are plant and equipment, land in use, natural resources, and intangible assets such as patent.

Reason behind considering the long-lived assets to be a “bundle of future services”:

Long-lived assets are acquired in expectance of the future revenues they would bring for the company in the future period. It is for this reason that the long-lived assets are considered to be a “bundle of future services”. The cost of the asset is matched as an expense with the revenues generated by the asset from one period to another period throughout the useful life of the asset.