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AS - 10 ACCOUNTING FOR FIXED ASSETS
Objective: This
standard gives answer what is fixed asset and how to value the
fixed assets. Initially this accounting standard will be
recommendatory in character. During this period, this standard
is recommended for use by companies listed on a recognized stock
exchange and other large commercial, industrial and business
enterprises in the public and private sectors.
Scope: This
standard applicable to all fixed assets such as land, buildings,
plant and machinery, vehicles, furniture and fittings, goodwill,
patents, trade marks and designs. But it does
not deal with the following assets: a. Forests,
plantations and similar regenerative natural resources; b. Wasting
assets including mineral rights, expenditure on the exploration
for and extraction of minerals, oil, natural gas and similar
non-regenerative resources;
Definitions: Fixed
asset: It is an
asset held with the intention of being used for the purpose of
producing or providing goods or services and is not held for
sale in the normal course of business. Fair
Market Value: It is the
price that would be agreed to in an open and unrestricted market
between knowledgeable and willing parties dealing at arm’s
length. Gross
Book Value: It is its
historical cost or other amount substituted for historical cost
in the books of accounts. When this amount is shown net of
accumulated depreciation, it is termed as net book value.
Net book value: Gross book
value Less:
Accumulated depreciation
Elements of Historical cost of
fixed asset are as follows: Purchase
price:
Add:
Import duties
Non-refundable taxes
Any cost that bring the asset for its intended use
E.g., Site preparation costs
Installation costs.
Less:
Trade discount
Note: If the time
gap between the date of a project is ready to commence
production and when production actually begins is prolonged, all
expenses incurred during this period are charged to the
profit and loss Account.
Non – monetary consideration: 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 balance
payment or receipt of cash or other consideration.
For
this purpose fair market value may be determined by reference
either to the asset given up or to the
asset acquired, whichever is more clearly evident.
Improvement and repairs: All these
costs should be added to book value
only if it increases the life of the asset than previously
assessed life.
Disclosure requirements:
a.
The company should disclose
Gross and net book
values of fixed assets at the beginning and end of an accounting
period along with additions, disposals, acquisitions and other
movements during the year. b.
Expenditure incurred in the course of construction or
acquisition. c.
Revalued amounts substituted for historical costs of fixed
assets, the method adopted for revaluation, the nature of
indices used, the year of any appraisal made and whether an
external valuer was involved in carrying out the revaluation. Assets
acquired on Hire Purchase:
Assets
should Record at their cash value with suitable disclosure. Assets
owned jointly with others:
Asset
should record in the Balance sheet to the extent of the
enterprise’s share in such assets, original cost, accumulated
depreciation and written down value. Assets
purchased for a consolidated price:
The
consideration is apportioned to the various assets on a fair
basis determined by competent valuers.
Goodwill: Goodwill
needs to be accounted for only when some consideration in money
or money’s worth has been paid for it. |
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