AS10 Accounting of fixed assets

AS10 Accounting of fixed assets

AS10 Accounting of fixed assets: Fixed Assets are assets that are kept with the aim of being employed in the production or provision of products or services and are not held for sale in the ordinary course of business. (It is anticipated that it would be utilised for several accounting periods.)

The purchase price of a fixed asset is included in the cost of the asset.

• Non-refundable import duties and additional charges
• The direct cost of restoring the item to functioning order.
• The cost of installation
• Professional costs, such as those charged by architects
• General business overhead when these costs are directly related to the acquisition/preparation of fixed assets
• Any costs incurred prior to commercial manufacturing, such as test runs and experimental production.
• Any costs incurred before the asset is ready for use are not reimbursed.
• Deferred payment loss resulting from a foreign currency obligation
• Price increases, duty adjustments, and other such reasons.

The cost of a fixed asset is subtracted as follows:

• Trade rebates and discounts
• Profits from the test run production
• The amount of government grants that have been received or are expected to be paid against fixed assets.
• Profit on a postponed payment due to a foreign currency obligation

Similarly, the cost of self-constructed fixed assets in the past has included:

• All expenses that are directly tied to the asset
• All expenditures incurred as a result of construction should be assigned to fixed assets.
• Any internal profit that has been included into the cost should be removed.

Any costs made on an asset between the time it is ready for use and the time it is put to use are either charged to the P&L A/c or classified as deferred revenue expenditures that will be amortised over the next 3-5 years once production begins.

When acquiring a fixed asset in exchange for another asset, the cost of the acquired asset should be reported.

– either at, or close to, fair market value

– or at the net book value of the assets that have been surrendered

Fair market value may be assessed for this reason by comparing the asset given up to the asset obtained, whichever is more obvious.

Fixed assets purchased in exchange for shares or other securities should be valued at the FMV of the assets given up or acquired, whichever is more obvious. (That is, the option of registering the asset at its net book value has been closed.) Fair market value is the price that two competent and willing parties trading at arm’s length would agree to in an open and unfettered market.

Only if further expenditures associated to a fixed asset raise the future benefits from the current asset above its previously evaluated level of performance should they be included to its book value.

Material objects that have been taken out of service and are being kept for disposal should be valued at the lower of their net book and net realisable values and indicated separately. On disposal or when no more advantage is foreseen from their use and disposal, fixed assets should be removed from the financial statements. The profit or loss from such a sale or write-off is recorded in the profit and loss statement.

Revaluation

Fixed assets are represented at their revalued price when they are revalued. Fixed asset revaluation should be limited to the net recoverable value of the asset. When revaluing a fixed asset, a complete class of assets should be revalued, or a systematic selection of assets for revaluation should be done. That foundation must be revealed.

Accounting treatment of revaluation under different situation:

When revaluation is made upward

• Fixed Assets A/c Dr
• To Revaluation Reserve

When revaluation is made downward

• P&L A/c Dr
• To Fixed Assets

When revaluation is made upward subsequent to previous upward revaluation

• Fixed Assets A/c Dr
• To Revaluation Reserve

When revaluation is made downward subsequent to previous upward revaluation

• Revaluation Reserve A/c Dr (To the extent of carrying amount of R.R)
• P&L A/c Dr (Balancing Figure)
• To Fixed assets

When revaluation is made upward subsequent to previous downward revaluation

• Fixed assets A/c Dr
• To P&L A/c (To the extent of
  previous downward revaluation)
• To Revaluation Reserve (Balancing Figure)

When revaluation is made downward subsequent to previous downward revaluation

• P& L A/c Dr
• To Fixed Assets

Accounting treatment on disposal of Fixed Assets:

On sale of fixed assets
Bank A/c Dr
P & L A/c Dr (If Loss)
To Fixed Assets
To P & L A/c (If Profit)

AS10: Accounting of fixed assets: On sale of fixed assets where upward revaluation has taken place:

On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value is normally charged or credited to the profit and loss account except that, to the extent such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilized, it is charged directly to that account. The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset may be transferred to general reserve.

In the case of fixed assets owned by the enterprise jointly with others, the extent of the enterprise’s share in such assets, and the proportion of the original cost, accumulated depreciation and WDV should be stated in the B/S.
Alternatively, the pro rata cost of such jointly owned assets may be grouped together with similar fully owned assets with an appropriate disclosure thereof.

Only purchased goodwill should be recorded in books.
Disclosure:
• Gross and net book value of fixed assets at the beginning and end of period showing additions and disposals
• Revalued amounts substituted for historical costs of fixed assets, the method adopted to compute the same and whether an external valuer was involved.