ACCOUNTING FOR FIXED ASSESTS

ACCOUNTING STANDARD 10
Presented By

Mridul Arora
Gursimran Singh Grewal
What are Fixed Assets?
•They are held for producing or providing goods and
services
•They are not meant to be sold in the normal course of
business
•They are expected to be used for more than one
accounting period
•Stand-by equipment and servicing equipments are also
fixed assets, even though they are used only once in a
while only when the main equipment fails.
•To be recorded in the financial statement either at
historical cost or revalued price
Historical Cost
It includes:
• Purchase Price
• Import Duties
• Non-refundable taxes
• Delivery cost
• Installation cost
• Gain/loss on deferred payment on foreign currency
• Government grants received or paid to be adjusted
accordingly, etc
Revalued Price
•The basis of revaluation must be disclosed
•Methods of revaluation are:
• Re-stating the gross book value and accumulated
depreciation
• Re-stating net book value adding or subtracting the
net increase or decrease on revaluation
•Maximum revaluated amount should never exceed the
net recoverable amount of fixed asset
•If there is an increase in net book value it is credited
under ‘Revaluation Reserve’
•If there is a decrease in net book value it is charged to
profit & loss account
Improvement and Repairs
•After repairs if the expected benefits from fixed asset do
not change then the expenses of repairs are charged to
profit & loss account
•After repairs if the expected benefits from fixed asset
increases then the expenses of repairs are included in the
gross book value of fixed assts
•If an addition is made to the fixed asset which can be
used after disposal of existing asset it is accounted
separately
•If an addition is made to the fixed asset which can not be
used after disposal of existing asset it is added to the
gross book value of the asset
Retirements and Disposal
•Fixed assets are deleted from financial statement on
• Disposal
• Expected economic benefit is over
•Gains/ losses arising on disposal are generally recognized
in profit & loss account
•The disposal amount is recorded in the balance sheet
•If an asset is held for disposal then lower of net book
value or net realizable value is stated in the financial
statement
Disclosure
•Gross and net book values of fixed assets at the
beginning and end of accounting period showing all
movements
•Expenditure incurred on fixed asset in course of
acquisition
•The method adopted to compute the revaluation
amount
•Whether an external valuer has valued the fixed asset
Illustration 1
Q: Gross value of the asset is Rs. 10 lakhs. Depreciation is charged
under straight line method. The useful life is 10 years. The estimated
scrap value is 3%. At the end of seventh year the asset is assessed to
be useless. Its estimated net realizable value is 3,10,000. Determine
the loss/ gain on disposal of the fixed asset.
A: Cost of asset Rs 10,00,000
Estimated scrap value Rs 30,000
Thus, depreciable amount Rs 9,70,000
Depreciation per year 97,000
Written down value at the end of 7th year = 10,00,000 - (97,000 X 7) =
Rs 3,21,000
Thus net loss = 3,21,000 – 3,10,000 = 11,000 (to be shown in profit &
loss account)
Asset of Rs 3,10,000 to be shown in the balance sheet
Illustration 2
Q: A semi-automatic part of a machine was replaced with a
more expensive fully automatic part, which has doubled the
output of the machine. The machine was moved to more
suitable place which involved the building of new foundation.
What would be the necessary course of action?
A: The replacement of semi-automatic part with a fully
automated part has doubled the output of the machine. Thus,
it has increased the future benefit beyond the earlier
estimated output of the machine. Hence this expense should
be capitalized as the part of cost of machine. However, the
expense of shifting the machine and building of new
foundation do not contribute to any new future benefits from
the existing asset. This cost should be charged to revenue
Reference

Students’ Guide to Accounting Standards by D. S. Rawat

Financial Accounting (Vol II) by Hanif & Mukherjee
Thank You

For your patient listening