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Date post: 15-Jul-2015
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Accounting standard-10Accounting for fixed assetsPresentation ByKunalVikasNilMayur

Fixed assetsFixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. Buildings, real estate, equipment and furniture are good examples of fixed assets.Fixed assets also referred as PPE (Property, Plant, and Equipment)Fair market valueFair market value is the price that would be agreed to in an open and unrestricted market between knowledgeable and willing parties dealing at arms length who are fully informed and are not under any compulsion to transact.

Gross book valueGross book value of a fixed asset is its historical cost or other amount substituted for historical cost in the books of account or financial statements. When this amount is shown net of accumulated depreciation, it is termed as net book value.

Nature of fixed assetsThey are acquired for relatively long period for carrying on business of the enterprise.They are not intended for resale in the ordinary course of business.

Mode of valuation of fixed assets1. Cost Method In this method, valuation of assets is made on the basis of purchase price of the assets. It is very simple method of valuation of assets. Sometimes, existence of one assets depends on the existence of another. Then it is difficult to use this method.For example,For transporting employees or goods or products purchased or sold by the company.They are not meant for resale and hence while valuing them the going concern concept of accounting is quite relevant.Going concern: A term for a company that has the resources needed in order to continue to operate indefinitely. If a company is not a going concern, it means the company has gone bankrupt.

Mode of valuation of fixed assets2. Market Value Method Valuation of assets can be made on the basis of market price of such assets. But if same nature of assets is not available in the market, it is very difficult to determine the value of such assets. So, there are two methods related to it. They are:Market Value MethodReplacement Value MethodIf same asset is to be purchased then on the basis of same value, valuation of assets can be done.Net Realizable Value It refers to the price in which such asset can be sold in the market. But expenditure incurred at the sale of such asset should be deducted.Mode of valuation of fixed assets3. Base Stock Method Under this method of valuation, company should maintain certain level ofstockand valuation ofstockis made on the basis of valuation of basestock.4. Standard Cost Method Some of the business organizations fix the standard cost on the basis of their past experience. On the basis of standard cost, they make valuation of assets and present in the balance sheet.Components of fixed assetsCost of fixed asset = purchase price + other cost is also considerAdministration or general overhead excluded from cost of fixed asset. [Rent, Salary, Do not include one time cost]Expenditure of start up & commissioning is includedSome time treated as deferred revenue expenditureAccounting for revalued fixed assetsThe following information should be disclosed in the financial statements.Gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movementsExpenditure incurred on account of fixed assets in the course of construction or acquisitionRevalued amounts substituted for historical costs of fixed assets, the method adopted to compute the revalued amounts, the nature of indices used, the year of any appraisal made, and whether an external valuer was involved, in case where fixed assets are stated at revalued amounts.

Valuation of fixed assets in special casesFixed assets acquired on hire basis Fixed asset owned jointlyFixed asset acquired for a consolidated priceFixed assets of special typeGoodwill, in general, is recorded in the books only when some consideration in money or moneys worth has been paid for it. (Payable either in cash or in shares or otherwise)As a matter of financial prudence, goodwill is written off over a period.

Disclosure of fixed assetsGross and net book values of fixed assets at the beginning and end of an accounting period showing addition, disposals, acquisitions.Expenditure incurred on account of fixed assets in course of construction or acquisition.Relevant amounts substituted for historical costs of fixed assets.

Distinct between fixed assets & current assetsBasis of distinctionFixed assets Current assetsValuationCost less depreciation Cost or market whichever lowerSubject to changeNot YesPledgeCan not beCan beFixed v/s Floating chargeFixed chargeFloating chargeNature of profit on saleCapital nature Revenue natureSources of financeLong term fundShort term fundThank You