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Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
Fixed Assets Accounting
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Fixed Assets Accounting

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Fixed Assets Accounting is very essential for matching costs with revenues. A fixed asset is an asset held with the intention of being used for producing goods. Check the above presentation for …

Fixed Assets Accounting is very essential for matching costs with revenues. A fixed asset is an asset held with the intention of being used for producing goods. Check the above presentation for in-depth details.

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  • 1. Welingkar’s Distance Learning Division Financial Accounting CHAPTER-7. Accounting for Fixed Assets We Learn – A Continuous Learning Forum
  • 2. Financial Accounting Accounting for Fixed Assets Chapter Seven Capital vs. Revenue Why segregate ? £ essential for accounting concept of matching costs with revenues £ distinction affects the ‘bottom line’ directly
  • 3. Financial Accounting Accounting for Fixed Assets Chapter Seven Fixed Asset A fixed asset is an asset held with the intention of being used for the purpose of producing goods and is not held for sale in the normal course of business.
  • 4. Financial Accounting Accounting for Fixed Assets Chapter Seven Capital Expenditure An expenditure incurred with a view to bringing an asset into existence or an advantage or a benefit of an enduring nature for the business, is treated as capital expenditure.
  • 5. Financial Accounting Accounting for Fixed Assets Chapter Seven Revenue Expenditure An expenditure incurred for day-to-day running of the business, is treated as revenue expenditure.
  • 6. Financial Accounting Accounting for Fixed Assets Chapter Seven Deferred Revenue Expenditure An expenditure which is not in the nature of capital expenditure or does not bring any asset into existence, but yet the benefit of which to the business would be enjoyed over, say 3-5 subsequent years, is treated as deferred revenue expenditure.
  • 7. Financial Accounting Accounting for Fixed Assets Chapter Seven Components of Cost of Fixed Asset 1. Purchase Price. 2. Import duty / any other non-refundable levy. 3. Any directly attributable cost of bringing the asset to its working condition. 4. Borrowing cost of funds that finance the asset. 5. Commissioning and trial expenses until commencement of production.
  • 8. Financial Accounting Accounting for Fixed Assets Chapter Seven Revaluation of Assets Generally not allowed unless there are valid and compelling reasons. These reasons & basis for revaluation must be disclosed. A class of assets is revalued and not an individual one. Increase in value is credited to Revaluation Reserve a/c and decrease written off to Profit & Loss a/c
  • 9. Financial Accounting Accounting for Fixed Assets Chapter Seven Machinery Spares ‘ not specific to a particular machine / asset & can be used for generally for various items of assets’ are treated as any other inventory and expensed on issue. ‘ specific to a particular machine / asset & can be used in connection with that asset only’ ‘ use expected to be irregular’ are capitalized to be written off in a systematic manner over a period.
  • 10. Financial Accounting Accounting for Fixed Assets Chapter Seven Accounting for Fixed Assets Asset Account Related Expense* Land None Property, Plant, Equipment Depreciation Natural Resources Depletion (like mines, oilfields ) Intangibles Amortization * on income statement
  • 11. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation Every year depreciation is calculated and journal entry passed as under Depreciation Expense a/c dr To Accumulated Depreciation a/c* * is a contra account and its matching pair is the asset a/c.
  • 12. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation Every year depreciation is calculated and journal entry passed as under Depreciation Expense a/c dr To Accumulated Depreciation a/c - is a contra account and its matching pair is the asset a/c. - is a non cash expense, hence added to net income in cash flow statement.
  • 13. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation In the Balance Sheet Assets are shown at Gross Value less Accumulated Depreciation _________________________ Book Value
  • 14. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation GAAP provide for several methods of depreciation – we study these three i ] Straight Line ii ] Units of Production (UOP) iii ] Written Down Value (WDV)
  • 15. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation GAAP provide for several methods of depreciation – we study these three i ] Straight Line – straight line depreciation allocates an equal amount of expense each year during useful life of the asset.
  • 16. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation GAAP provide for several methods of depreciation – we study these three i ] Straight Line – straight line depreciation allocates an equal amount of expense each year during useful life of the asset. cost of asset less its residual value Calculation = expected useful life in years
  • 17. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation GAAP provide for several methods of depreciation – we study these three i ] Straight Line ii ] Units of Production ( UOP )– Method involves two step process 1. Calculate the UOP rate = cost of asset less its residual value divided by expected useful life in UOP
  • 18. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation GAAP provide for several methods of depreciation – we study these three i ] Straight Line ii ] Units of Production ( UOP )– Method involves two step process 1. Calculate the UOP rate 2. Multiply the rate by actual UOP during the period.
  • 19. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation GAAP provide for several methods of depreciation – we study these three i ] Straight Line ii ] Units of Production (UOP) iii ] Written Down Value (WDV) – - depreciation is calculated as %. - following year’s depreciation at % above, applied to the book value at beginning of the year.
  • 20. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation GAAP provide for several methods of depreciation – we study these three i ] Straight Line ii ] Units of Production (UOP) iii ] Written Down Value (WDV) – - approved by Indian Income Tax laws. - ignores residual value in the first year’s depreciation.
  • 21. Financial Accounting Accounting for Fixed Assets Chapter Seven Depreciation i ] Straight Line ii ] Written Down Value (WDV) – If asset put to use in the middle of a year. depreciation in the first year is equal to depreciation for full year x fraction of year asset used. If asset commissioned in January , depreciation will be one fourth of full year.
  • 22. Financial Accounting Accounting for Fixed Assets Chapter Seven Sale of Asset at some point , fixed assets are no longer useful and need to be sold, exchanged or discarded. at this time asset account is credited & accumulated depreciation is debited.
  • 23. Financial Accounting Accounting for Fixed Assets Chapter Seven Sale of Asset at some point , fixed assets are no longer useful and need to be sold, exchanged or discarded. at this time asset account is credited & accumulated depreciation is debited. if sale value of the discontinued asset is more (less) than its book value, a gain (loss) is realized. this is credited to (written off) profit & loss account.
  • 24. Financial Accounting Accounting for Fixed Assets Chapter Seven “ Accounting for capital expenditure is critical as segregation between capital & revenue expense has direct impact on the bottom line. Depreciation is a major non-cash expense that provides cash inflow for business. All assets are depreciated in a consistent manner so that there are no hits to bottom line when asset reaches end of its useful life”

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