Accounting for fixed assets


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

assets

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

intended use.

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

performance.

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

disclosed.

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

account.

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’.

Disclosure

20. The following information should be disclosed in the financial

statements:

(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.

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