1. The items determined in accordance with the definition in
paragraph 6.1 of this Standard should be included under fixed assets
in financial statements.
2. The gross book value of a fixed asset should be either historical
cost or a revaluation computed in accordance with this Standard.
The method of accounting for fixed assets included at historical cost
is set out in paragraphs 20 to 26; the method of accounting of revalued
3. The cost of a fixed asset should comprise its purchase price and
any attributable cost of bringing the asset to its working condition for its
4. The cost of a self-constructed fixed asset should comprise those
costs that relate directly to the specific asset and those that are
attributable to the construction activity in general and can be allocated
to the specific asset.
Accounting for Fixed Assets 105
5. When a fixed asset is acquired in exchange or in part exchange
for another asset, the cost of the asset acquired should be recorded
either at fair market value or at the net book value of the asset given up,
adjusted for any balancing payment or receipt of cash or other
consideration. For these purposes fair market value may be determined
by reference either to the asset given up or to the asset acquired,
whichever is more clearly evident. Fixed asset acquired in exchange
for shares or other securities in the enterprise should be recorded at its
fair market value, or the fair market value of the securities issued,
whichever is more clearly evident.
6. Subsequent expenditures related to an item of fixed asset should
be added to its book value only if they increase the future benefits from
the existing asset beyond its previously assessed standard of
7. Material items retired from active use and held for disposal should
be stated at the lower of their net book value and net realisable value
and shown separately in the financial statements.
8. Fixed asset should be eliminated from the financial statements on
disposal or when no further benefit is expected from its use and disposal.
9. Losses arising from the retirement or gains or losses arising from
disposal of fixed asset which is carried at cost should be recognised in
the profit and loss statement.
10. When a fixed asset is revalued in financial statements, an entire
class of assets should be revalued, or the selection of assets for
revaluation should be made on a systematic basis. This basis should be
11. The revaluation in financial statements of a class of assets should
not result in the net book value of that class being greater than the
recoverable amount of assets of that class.
12. When a fixed asset is revalued upwards, any accumulated
depreciation existing at the date of the revaluation should not be credited
to the profit and loss statement.
13. An increase in net book value arising on revaluation of fixed assets
should be credited directly to owners’ interests under the head of
revaluation reserve, except that, to the extent that such increase is
related to and not greater than a decrease arising on
revaluation previously recorded as a charge to the profit and loss
statement, it may be credited to the profit and loss statement. A
decrease in net book value arising on revaluation of fixed asset
should be charged directly to the profit and loss statement except that to
the extent that such a decrease
is related to an increase which was previously recorded as a credit to
revaluation reserve and which has not been subsequently reversed or
14. The provisions of paragraphs 23, 24 and 25 are also applicable
to fixed assets included in financial statements at a revaluation.
15. On disposal of a previously revalued item of fixed asset, the
difference between net disposal proceeds and the net book value should
be charged or credited to the profit and loss statement except that to the
extent that 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 utilised, it may be charged directly to that
16. Fixed assets acquired on hire purchase terms should be recorded
at their cash value, which, if not readily available, should be calculated
by assuming an appropriate rate of interest. They should be shown in
the balance sheet with an appropriate narration to indicate that the
enterprise does not have full ownership thereof.
17. 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 written
down value should be stated in the balance sheet. Alternatively, the pro
rata cost of such jointly owned assets may be grouped together with
similar fully owned assets with an appropriate disclosure thereof.
18. Where several fixed assets are purchased for a consolidated price,
the consideration should be apportioned to the various assets on a fair
basis as determined by competent valuers.
19. Goodwill should be recorded in the books only when some
consideration in money or money’s worth has been paid for it. Whenever
a business is acquired for a price (payable in cash or in shares or
otherwise) which is in excess of the value of the net assets of the business
taken over, the excess should be termed as ‘goodwill’.
20. The following information should be disclosed in the financial
(i) gross and net book values of fixed assets at the beginning and
end of an accounting period showing additions, disposals,
acquisitions and other movements;
(ii) expenditure incurred on account of fixed assets in the course
of construction or acquisition; and
(iii) revalued amounts substituted for historical costs of fixed assets,
the method adopted to compute the revalued amounts, the
nature of indices used, the year of any appraisal made, and
whether an external valuer was involved, in case where fixed
assets are stated at revalued amounts.