CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

A long-term asset is different from inventory primarily because a long-term asset ______.
A. is used in operations and not for resale.
B. has physical substance.
C. is long-term in nature.
Explanation: The most correct statement is A.

User Contributed Comments 10

User Comment
danlan Is B correct?
C2inOC I think B is wrong because inventory can have physical substance as well.
prachirp A long term asset is long term in nature.Inventory is not considered long term.C looked justifiable.
oregon you can have inventory for long-term (more than one operation cycly or 1 year) as well, but they are still used for resale.
gill15 Long term asset does NOT have to be physical thats why its wrong

Intangible assets
vadfir What is wrong with C?
gordonp87 i don't agree with this answer. the definition of a long term asset is that it's not going to be sold within 1 year. Therefore, it's long term in nature. inventory is not long term in nature.
adidas @gordonp87: if a company purchases something with an intention to sell it next year, it should be classified as long-term asset? It should still be an inventory. Many inventories stay with companies for more than a year.
mysuperCFA The intention triggers the classification. So, if the intention is to keep the asset for a long term , then it's called LT asset
kingirm There may be arguments against b and c... an asset might always be sold if someone pays enough or this asset is obsolete already. Both inventory and l-t-a have physical substance. But inventory is never a long term component of balance sheet by definition.
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