The Institute of Chartered Accountants of India

Project Submitted By :- Raveesh Samakria

INFORMATION TECHNOLOGY TRAINING

ACCOUNTING STANDARD – 10 : ACCOUNTING FOR FIXED ASSETS

Objective of Standard

Meaning of fixed assets Component of cost of fixed assets Exchange of assets Capitalization principle Evaluation of fixed assets Retirement and disposal of fixed assets

AS – 10 Does Not Deal With Following

1. Forest, plantation and similar regenerative natural resources.

2. Wasting assets including mineral rights, expenditure on the exploration for and extraction of minerals oils, natural gases and similar non-regenerative resources.

3. Expenditure on real estate development and4. Livestock.

What is Fixed Assets ?

Fixed Asset is an assetheld with the intention of being used forproducing or providing goods or services

andis not held for sale in normal course of

business

Gross Book Value of Fixed Asset

Net Book Value of Fixed Asset

• Is it’s historical cost.• Or other amount substituted for historical

cost.

• Gross book value net of depreciation.

Components of Cost of Fixed Assets

Purchase Price+

Import duties and other non refundable taxes+

Any directly attributable cost on bringing the asset to its working condition for its intended

use

Following Items Comprises of Cost of Fixed Assets

Expenditure incurred on start up and commissioning of the project including expenditure incurred on test runs and experimental production less any income by sale of products.

Finance cost charged to cost of fixed assets till the assets are ready for use.

Administrative and other overheads specifically incurred for the construction/ acquisition/ installation of fixed asset.

Asset acquired by Non Monetary Consideration

When a fixed asset is acquired in exchange for another asset, it’s cost is usually determined by reference to the fair market value of the consideration given.

It may be appropriate to consider also the fair market value of the asset acquired if this is more clearly evident.

Improvements and Repairs

Added to value of fixed assets if

It increase future benefits beyond its previously assessed standards of

performance

Evaluation of Fixed Asset

• An entire sheet asset should be revalued or the selection of assets for revaluation should be made on systematic basis.

• The revaluation would not result in net book value of that class being greater than the recoverable amount of assets.

• When a fixed asset is revalued upward any accumulated depreciation existing at the date of revaluation should not be credited to the profit and loss statement.

Retirement and Disposal Fixed assets that have been retired from active use and held for disposal

are stated at lower of their net book value and net realizable value.

On disposal of fixed asset, the difference between net disposal proceeds and the net book value is charged or credited to profit and loss statement.

If any loss on disposal is related to a previously increase, credited to revaluation reserves, such loss should be charged directly to that account.

Revaluation reserves created by upward revaluation of fixed assets is not available for distribution as dividend.

Amount standing in revaluation reserves after retirement or disposal of an asset may be transferred to general reserves.

Self – Constructed Fixed Assets

Cost of construction that relate directly to the specific asset, included in the gross book value of that asset.

Cost that are attributable to construction activity in general can be allocated to the specific asset.

Any internal profits are eliminated in arriving at cost of self-constructed fixed assets.

Fixed Asset Acquired on Hire Purchase Basis

Joint Ownership

• In hire purchase, purchasing enterprise is not the legal owner, such assets are recorded as “fixed asset on hire purchase” at their cash value.

• When an enterprise owns fixed assets jointly with others, the extent of it’s share in such assets, and proportion in the original cost, accumulated depreciation and written down value required to be stated in balance sheet.

Goodwill

Recorded in books only when some consideration in money or money’s worth has been paid for it.

As a matter of financial prudence, goodwill is written off over a period of time.

Patents Acquired in Two

waysBy Purchase By Development

Valued at purchase cost including incidental

expenses, stamp duty, etc.

Valued by capitalization of identifiable cost

incurred

Written off over their legal term of validity or their working life, which ever

is shorter

Know How

Two Types

Relating to plans, designs, drawings of buildings, plants

or machinery

Relating to manufacturing

process

Capitalized under the relevant asset head

Book expense in the year in which it is incurred

Disclosure Requirements Gross and net book values of fixed assets at the beginning

and end of an accounting period showing additions, disposals and other movements;

Expenditure incurred on account of fixed assets in the course of construction or acquisition; and

Revalued amount substituted for fixed assets, method adopted to compute revalued amount, year of appraisal made and whether an external value was involved.

THANK YOU…!!!