accounting standard 10 (1)

7/30/2019 Accounting Standard 10 (1)

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Buildings


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ACCOUNTING STANDARDS 10

FIXED ASSETS:

It Is An Asset, which is:-

Held With intention of being used for the purpose of producing or providing goodsand services.

Not held for sale in the normal course of business.

Expected to be used for more than one accounting period.

Examples of fixed assets are:-

LandBuilding- freehold

Leasehold-building

Plant and machinery

Furniture & fitting etc


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Introduction

1. Financial statements disclose certain information relating to fixed assets.In many enterprises these assets are grouped into various categories, suchas land, buildings, plant and machinery, vehicles, furniture and fittings, goodwill,patents, trade marks and designs. This standard deals with accounting forsuch fixed assets except as described in paragraphs 2 to 5 below.2. This standard does not deal with the specialised aspects of accounting

for fixed assets that arise under a comprehensive system reflecting the effectsof changing prices but applies to financial statements prepared on historicalcost basis.3. This standard does not deal with accounting for the following items towhich special considerations apply:(i) forests, plantations and similar regenerative natural resources;(ii) wasting assets including mineral rights, expenditure on theexploration for and extraction of minerals, oil, natural gas and similarnon-regenerative resources;(iii) expenditure on real estate development; and(iv) livestock.


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

Fair market value is the price that would be agreed to in an openand unrestricted market between knowledgeable and willingparties dealing at arm's length who are fully informed and are notunder any compulsion to transact.

Gross book value of a fixed asset is its historical cost or other

amount substituted for historical cost in the books of account of financial statements. When this amount is shown net of accumulated depreciation, it is termed as net book value.

Definitions


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Explanation

Fixed assets often comprise asignificant portion of the total assets of an enterprise, and therefore are

important in the presentation of financial position.

The Determination of whether anexpenditure represents an asset or anexpense can have a material effect on anenterprise's reported results of operations.


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This statement does not deal with accounting for thefollowing items to which special considerations apply:

(i) forests, plantations and similar regenerative naturalresources.

(ii) wasting assets including mineral rights, expenditure on theexploration for and extraction of minerals, oil, natural gas andsimilar non-regenerative resources.

(iii) expenditure on real estate development.

(iv) livestock.


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Is the purchaseditem long-lived?

yes

Is the asset used in aproductive purpose?

no

Expense

yes

Fixed Assets

no

Investment

Classifying Costs 10-1


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TYPES OF FIXED ASSETS

TANGIBLE ASSETSEXAMPLE:-Land , building and Computer etc.

INTANGIBALE ASSETSEXAMPLE:-Goodwill, Patents and Trademarks etc.


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Fixed Assets :-

Goodwill is a Non Tangible Asset.

No Depreciation is charged in Goodwill as perAccounting Standard 6 .


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FIXED ASSETS OF SPECIAL TYPES

Goodwill, in general, is recorded in the books onlywhen some consideration in money or moneys worthhas been paid for it.

Whenever a business is acquired for a price which is inexcess of the value of the net assets of the businesstaken over, the excess is termed as goodwill.

Goodwill arises from business connections, trade nameor reputation of an enterprise or from other intangiblebenefits enjoyed by an enterprise.


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At the beginning of its fiscal year, a businessacquires a patent right for $100,000. Its

remaining useful life is estimated at 5 years.

10-5Journalizing Amortization of a Patent

Dec. 31 Amortization Expense Patents 20 000 00Patents 20 000 00

Patent amortization($100,000/5).

Adjusting Entry

Because a patent (and other intangible assets) does not exist physically, itis acceptable to credit the asset. This approach is different from physical

fixed assets that require the use of a contra asset account.


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The exclusive right granted by the federal governmentto publish and sell a literary, artistic, or musical

composition is a copyright . A copyright extends for70 years beyond the authors death.

10-5

Copyright

A trademark is a unique name, term, or symbol used to identify a business and its products.Most businesses identify their trademarks with in their advertisements and on their

products. Trademarks can be registered for 10 years and can be renewed every 10 yearperiod thereafter.

Trademark


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In business, goodwill refers to anintangible asset of a business that iscreated from such favorable factors

as location, product quality,reputation, and managerial skill.

10-5Goodwill

Generally accepted accounting principlespermit goodwill to be recorded in the

accounts only if it is objectivelydetermined by a transaction.


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Impaired Goodwill 10-5

A loss should be recorded if the business prospects of the acquired firm(and the acquired goodwill) become significantly impaired.

Mar. 19 Loss from Impaired Goodwill 50 000 00Goodwill 50 000 00

Impaired goodwill.


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EXAMPLE FOR VALUATION OF FIXED ASSETS : XYZ Ltd has certain Assets : Building Rs. 200000 Plant & Machinery Rs. 100000

Furniture Rs. 80000 Goodwill Rs. 50000 Stock Rs. 65000 Sundry Debtors Rs. 10000 Cash Rs. 54000 Find out the Fixed Assets & Charge Depreciation


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Fixed Assets :-

Building Rs. 200000Less Dep. (10%) Rs. 20000

Rs. 180000

* If the Dep. is not mentioned in the question weassumed the Dep. On Building would be 10% p.aas per Accounting Standard 6 .


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Fixed Assets :-

Plant & Machinery Rs. 100000Less Dep. (15%) Rs. 15000

Rs. 85000

* If the Dep. is not mentioned in the question weassumed the Dep. On Plant & Machinery wouldbe 15% p.a as per Accounting Standard 6 .


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Over time, fixed assets such as equipment, buildings, and landimprovements lose their ability to provide services. The periodic transfer

of the cost of fixed assets to expense is called depreciation .

Accounting for Depreciation

Physical depreciation occurs from wear and tear while in useand from the action of the weather Functional depreciation

occurs when a fixed asset is no longer able to provide services

at the level for which it was intended.


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Straight-Line Method

The straight-line method provides for the sameamount of depreciation expense for each year of the

assets useful life.

Annual depreciation =Cost estimated residual value

Estimated life


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Units-of-Production Method

The units-of-production method provides for the same amount of depreciation expense for each unit produced or each unit of

capacity used by the asset.

Unit depreciation =Cost estimated residual value

Estimated hours, units, etc.


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Double-Declining-Balance Method

The double-declining- balance method provides

for a declining periodicexpense over the estimated

useful life of the asset.


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A double-declining balance rate is determined by doubling

the straight-line rate. A shortcut to determining the straight-line rate is to divide one by the number of years ( 1/5 = .20 ).Hence, using the double-declining- balance method, a five-

year life results in a 40 percent rate (.20 x 2).


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The cost of an item of fixed asset comprises of :

Note : Any Trade Discount and Rebates are deducted in arriving atthe Purchase Price.

Components of Cost

Particulars Amount

Purchase Price *****

Add: Import Duties *****

Other Non-Refundable Taxes *****

Directly attributable Costs to Asset *****

TOTAL COST OF ASSET *****


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Examples of directly attributable costs are :

(i) site preparation;

(ii) initial delivery and handling costs;

(iii) installation cost, such as special

foundations for plant;

(iv) professional fees, for example fees of

architects and engineers.

Components of Cost


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When a fixed asset is acquired in exchange foranother asset, its cost is usually determined byreference to the fair market value of the

consideration given.

When a fixed asset is acquired in exchange forshares or other securities in the enterprise, it isusually recorded at its fair market value, or thefair market value of the securities issued,whichever is more clearly evident.

Non-monetary Consideration


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It is difficult to determine whether subsequentexpenditure related to fixed asset representsimprovements that ought to be added to thegross book value or repairs that ought to becharged to the profit and loss statement.

The cost of an addition or extension to an existingasset which is of a capital nature and whichbecomes an integral part of the existing asset isusually added to its gross book value.

Improvements and Repairs


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Items of fixed assets that have been retiredfrom active use and are held for disposal arestated at the lower of their net book value and

net realizable value and are shown separatelyin the financial statements. The amount standing in revaluation reserve

following the retirement or disposal of anasset which relates to that asset may betransferred to general reserve.

Retirements and Disposals


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Certain specific disclosures on accounting for fixedassets are already required by Accounting Standard -1on 'Disclosure of Accounting Policies' and AccountingStandard 6.

Further disclosures that are sometimes made infinancial statements include:

(i) Gross and net book values of fixed assets at thebeginning and end of an accounting period showingadditions, disposals, acquisitions and other movement.

Disclosure(As per Accounting Standard 10)


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(ii) expenditure incurred on account of fixed assets in the

course of construction or acquisition.

(iii) revalued amounts substituted for historical costs of fixed assets, the method adopted to compute the

revalued amounts, the nature of any indices used, theyear of any appraisal made, and whether an externalvaluer was involved, in case where fixed assets arestated at revalued amounts.

Disclosure


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accounting standard 10 (1)

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