Fixed Tangible AssetsPresented ByDipanway Bhabuk

Fixed Assets

How do you define Fixed assets?? Assets held with the business for more than a year. Held with the intention of being used for producing

goods/services. Not directly sold to the end consumer. Form significant portion of total assets. Reported cost of fixed assets = purchase price-

discounts on purchase +duties, charges and any other directly attributable cost.

Fixed Assets

Tangible Assets Intangible Assets

Land Building Plant & Machinery Equipment, Furniture &

Fixtures Vehicles

GoodwillPatentsTrademarksBrand name

Land Can be bought by a business either for use or investment.

Includes all cost associated with acquiring the land such as registration charges, stamp duty, brokerage, appraisals etc.

If land is purchased as a building site, certain expenses may be added to the cost: razing and removal, land or site improvements, utilities to site, and landscaping activity associated with new construction.

It is not a depreciating asset.

Requirement of land differs across different industries.

Eg. A coffee shop would directly purchase a shop in a commercial complex or a mall, where as a steel company would require land to set up its manufacturing unit

Buildings Can be purchased or constructed on own land.

Costs include the purchase price, professional services, appraisals, test borings, site preparation, materials, labor, plumbing, electric wiring and overhead as a direct result of the project during construction.

Building improvements such as cost for renovations, betterments, or improvements that add to the permanent value of the asset, make the asset better than it was when purchased, or extend its life beyond the original useful life are also included in the cost.

Plant & MachineryIncludes all expenses incurred from the

time of placing the order till the start of commercial production. They include expenses such as :-

The invoice price of the plant paid to

the supplier. The freight paid to bring the plant to

the installation site. The installation fees paid to the

engineers. The cost incurred on testing the plant

etc.

Vehicles Whether businesses own a few

company cars or a fleet of trucks, automobiles of all types taken as fixed assets.

The cost includes:- vehicle’s purchase price, registration and licence plate fees, the

cost of accessories the cost of transporting the vehicle to

the place where it is first to be used.

Equipment, Furniture & Fixture In addition to the net invoice price of an

asset, the cost of the equipment may also include the cost of installation, transportation, taxes, duty, or in-transit insurance.

All costs associated with modifications,

attachments, accessories, or auxiliary apparatus necessary to make the property usable for its intended purpose may also be capitalized, only if incurred at the time of initial equipment purchase.

Eg. Office chairs, office desk, book case, storage cabinets, computers, air conditioners etc.

Leasehold property- Capital lease In a capital lease, the company pays rent for using an

asset for a period of 99 years, at the end of which the ownership of the asset passes on to the company (lessee).

It has the same impact as that of a purchase made on an installment plan.

The asset is shown under fixed assets and the lease obligations are shown as a long term Liability.

Leasehold improvements Improvements performed on a leased property,

such as additions, alterations, remodeling, or renovations.

Treated as fixed asset in the balance sheet and are depreciated/amortized over the remaining life of the lease term or the life of the improvement (whichever is shorter).

Capital Work in progress Capital WIP is referred to as Assets under

Construction

It is an asset on the balance sheet that is not considered to be a final product, but must still be accounted for because funds have been invested toward its production. It is thus a work that has not been completed but has already incurred a capital investment.

Usually depreciation is not charged on Capital WIP.

Eg. - A machinery under installation - A building under construction

DepreciationThe monetary value of an asset decreases over time due to

use, wear and tear or obsolescence. This decrease is measured as depreciation. Accounting estimates the decrease in value using the information regarding the useful life of the asset.

Purpose : Matching the expense with the usage of the asset

Written Down Value (WDV)

MethodStraight Line method (SLM)

Depreciation methods

Depreciation - =

The Net block of Fixed assets is shown in the balance sheet. Also called the book value of the asset.

Different rates of depreciation for various assets given in the Companies Act (follows WDV or SLM) as well as Income Tax Act(follows only WDV)

Eg. Furniture &Fixtures are depreciated at 10% as per

Income Act & 18.1% as per Companies Act (WDV)

Gross Block Accumulated Depreciation

Net Block/Book value of asset

Revaluation

Sometimes assets are revalued to show their fair market value on the balance sheet.

When revalued, the assets are showed at a higher revalued amount.

The revaluation leads to an increase in owner’s equity and hence, an amount corresponding to the difference between the revalued amount and book value is shown as revaluation reserves under Reserves & Surplus.

Impairment

A capital asset is considered to be impaired when its service utility has permanently declined significantly and unexpectedly due to evidence of physical damage, changes in legal or environmental factors, technological changes or evidence of obsolescence.

Such charges are usually nonrecurring, and may relate to any type of asset.

The asset is permanently reduced on the balance sheet and the impairment is shown as a loss in the P&L Account.

Fixed asset structure across industries

Fixed assets turnover = Net sales/ Net fixed assets(Net block)TVS Marico Zensar

Fixed Assets turnover (FY2013) 7.59 10.56 10.59

The End