CLASSIFICATION OF FIXED ASSETS
Tangible fixed assets
include physical assets
Assets that do not have a
definite existence are called
intangible assets. They have
neither a physical form nor
give their owner definite
equipment, real estate,
and furniture, Motor Car,
Patents, Copy Rights,
Causes of depreciation:
Using up or
other reduction in the useful economic life of a tangible fixed asset whether arising
Effusion of time or obsolescence
FACTORS TO DETERMINE DEPRECIATION
- the cost of the fixed asset;
- the (estimated) useful life of the asset;
- the (estimated) residual value of the asset
- the method of depreciation
STRAIGHT LINE METHOD
• It is simplest and most commonly used method
• Calculation based on Purchase or acquisition price
• Salvage value / Scrap Value / Residual Value divided by the total productive
• Till the end of life of asset, Depreciation will not vary and remains constant
FORMULA FOR STRAIGHT LINE METHOD
(Purchase Price of Asset - Approximate Salvage Value) Estimated Useful
Life of Asset
WRITTEN DOWN VALUE METHOD
Applicable to machines that have high rates of depreciation in the initial year or
two, and later taper it e.g. a car, is a usable method.
Written-down value is also called book value or net book value. It is calculated by
subtracting accumulated depreciation or amortization from the asset's original
Also called as diminishing balance method or Reducing Instalment Method. This
accounting technique reduces the value of an asset by a set percentage each year
FORMULA FOR WRITTEN DOWN VALUE
Rate of depreciation = 1-(salvage value/Cost of asset)^(1/n)
n-> useful life of the asset.
This rate of depreciation is charged on the net book value of
the asset of each year.!
The depreciation rates are high at the start and low towards
the end of useful life of the asset
BOOKS OF DEPRECIATION
Straight – Line
e.Chain Fixed Asset Management
e.Chain has the Feature of Tracking assets of business uses internally including but
e.Chain allows companies to track the assets, where each is located, who has it,
when it was checked out, when it is due for return, when it is scheduled for
maintenance, and the cost and depreciation of each asset.
e.Chain has the reporting option that is built into most asset tracking solutions
provides pre-built reports, including assets by category and department, checkin/check-out, net book value of assets, assets past due, audit history, and
FIXED ASSET INTEGRATION WITH INVENTORY
Procurement of Capital Item will be is the part of Fixed Asset Register and it will be
stage of CWIP and Capitalisation.
Assignment of Part Number (LOT / Serial) to specific Category of Asset Category.
Asset which is created will be defaulted in CWIP process which can be changed to
capitalized for which the depreciation is to be calculated.
Definition of Method of Depreciation and its percentage also the statutory
WDV – Written Down Value - Depreciation percentage.
SLM – Straight Line Method
It is Sub divide d by two types as
b. Life Period
- Depreciation Percentage.
- Depreciation Up to Max and either Life Period or Life months.
Depreciation / day:
(orginal cost – salvage cost) /
((life year * no.of days in a year) + life month * no.of the days in a month))
(orginal cost – (orginal cost – accumulated depreciation )) * 100 / Original
Cost > Max Depreciation Percentage
Prorate convention is used to capture prorate date.
Prorate date overwrites the date placed in service for depreciation calculation
during the first year of asset's life.
Asset master form which contains the asset and the depreciation details
When an asset is considered retired, when it is permanently taken out of service, such
as through sale or disposal.
Retirement obligations can be done through this form.
Calculation of Depreciation can be done for Month / Year wise with the provision of Test
Run and Final Run
The detailed report of the depreciation calculated for the assets.