ACCOUNTING STANDARD-10ACCOUNTING FOR FIXED ASSETS

Presentation By

• Kunal

• Vikas

• Nil

• Mayur

FIXED ASSETS

Fixed asset is an asset held with the intention of being used for thepurpose of producing or providing goods or services and is not held forsale in the normal course of business.

Buildings, real estate, equipment and furniture are good examples offixed assets.

Fixed assets also referred as PPE (Property, Plant, and Equipment)

FAIR MARKET VALUE

Fair market value is the price that would be agreed to in an open andunrestricted market between knowledgeable and willing parties dealingat arm’s length who are fully informed and are not under any compulsionto transact.

GROSS BOOK VALUE

Gross book value of a fixed asset is its historical cost or other amountsubstituted for historical cost in the books of account or financialstatements. When this amount is shown net of accumulateddepreciation, it is termed as net book value.

NATURE OF FIXED ASSETS

• They are acquired for relatively long period for carrying on business ofthe 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 purchaseprice of the assets. It is very simple method of valuation of assets.Sometimes, existence of one assets depends on the existence ofanother. 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 “goingconcern” concept of accounting is quite relevant.

• Going concern: A term for a company that has the resources needed in order tocontinue to operate indefinitely. If a company is not a going concern, it means thecompany has gone bankrupt.

MODE OF VALUATION OF FIXED ASSETS

2. Market Value MethodValuation 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 isvery difficult to determine the value of such assets. So, there are twomethods related to it. They are:

MARKET VALUE METHOD

I. Replacement Value MethodIf same asset is to be purchased then on the basis of same value,

valuation of assets can be done.

II. Net Realizable ValueIt 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 ASSETS

3. Base Stock MethodUnder this method of valuation, company should maintain certain

level of stock and valuation of stock is made on the basis of valuation ofbase stock.

4. Standard Cost MethodSome of the business organizations fix the standard cost on the basis

of their past experience. On the basis of standard cost, they makevaluation of assets and present in the balance sheet.

COMPONENTS OF FIXED ASSETS

1. Cost of fixed asset = purchase price + other cost is also consider

2. Administration or general overhead excluded from cost of fixed asset.

[Rent, Salary, Do not include one time cost]

3. Expenditure of start up & commissioning is included

4. Some time treated as deferred revenue expenditure

ACCOUNTING FOR REVALUED FIXED ASSETS• The 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 andother movements

• Expenditure incurred on account of fixed assets in the course ofconstruction or acquisition

• Revalued amounts substituted for historical costs of fixed assets, themethod adopted to compute the revalued amounts, the nature ofindices used, the year of any appraisal made, and whether an externalvaluer was involved, in case where fixed assets are stated at revaluedamounts.

VALUATION OF FIXED ASSETS IN SPECIAL CASES

• Fixed assets acquired on hire basis

• Fixed asset owned jointly

• Fixed asset acquired for a consolidated price

FIXED ASSETS OF SPECIAL TYPE

• Goodwill, in general, is recorded in the books only when someconsideration in money or money’s 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 ASSETS

• Gross and net book values of fixed assets at the beginning and end ofan accounting period showing addition, disposals, acquisitions.

• Expenditure incurred on account of fixed assets in course ofconstruction or acquisition.

• Relevant amounts substituted for historical costs of fixed assets.

DISTINCT BETWEEN FIXED ASSETS & CURRENT ASSETS

Basis of distinction Fixed assets Current assets

Valuation Cost less depreciation Cost or market whichever lower

Subject to change Not Yes

Pledge Can not be Can be

Fixed v/s Floating charge Fixed charge Floating charge

Nature of profit on sale Capital nature Revenue nature

Sources of finance Long term fund Short term fund

Thank You