Assets as the key element of corporate reporting need greater attention than ever for organisations it means a generatingdeal including generating greater revenue for its stakeholder

1. ACCOUNTING FOR
FIXED ASSETS
CONCEPTS, NATURE AND MEANING
Track 1

2. Accounting Concepts and Conventions
2
Nature and
Meaning of
Fixed Assets
4
Security
of Fixed
Assets
1
Some
Definitions
3
Management of
Fixed Assets
Agenda
2
Accounting For Fixed Assets—
Concept, Nature and Meaning

3. Nature of Entities/Business
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Merchandising
Service
businesses
Public Sector
Entities
Manufacturing

4. Nature of Entities/Business
4
Can sue and be sued by
individuals and corporate bodies
alike depending on the type
Can take names even as persons
Makes up accounts for public
consumption
Main objective is to make profit
Remunerates all stakeholders out
of its profit
May die a natural death
However, may survive it’s promoters
even if all the directors perish in
a major peril
By Law, Entities…

5. Concepts, Conventions and
Definitions
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1
2
3
4
5
Cost concept—All
assets are shown at
cost price
Objectivity—
financial reports
must be prepared
on the basis of
verifiable
evidence .
Going Concern
Money
Measurement
Business Entity

6. Nature of
Entities/Business
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Periodicity
Realization
Matching
Dual Aspect
Prudence
Consistency

7. BASIC STRUCTURE
OF THE ACCOUNTING SYSTEM
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Personal
accounts
Impersonal
accounts
Accounts of Individuals Real and Nominal
• Debtors
• Creditors
• All Assets—Real
• Revenue and
Expenses—Nominal

8. ASSET DEPRECIATION
• Accounting Meaning
– Loss in value of an asset as a result of usage over
a period of time.
• Often considered as a means of allocating the cost of a fixed
asset, discounting its scrap value over the life of the asset.
• Principal Causes
– In the case of machinery, plant or equipment
• Wear and tear
• Obsolescence
– In the case of leases, patents, copyrights
• Passage
– For mines, quarries, or other wasting assets
• Depletion
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9. 9/20/2022 9
Reducing
Balance
Machine hr
Sum of Digits
Annuity
Straight-line
Commonly
used
methods of
depreciation

10. DEPRECIATION
• Basic Accounting Treatment
– Two Accounts are required
• Depreciation Account - will indicate the item of expense
to be charged annually in the accounts
• Provision for Depreciation - will maintain accumulated
amount written off the asset over a number of years.
– Account Entries
• Dr.- Depreciation Account (with annual write off)
• Cr.- Provision for Depreciation Account
– Balance Sheet Representation
• Show asset at NET BOOK VALUE (NBV) by deducting
balance of the provision for depreciation account from
the cost of the asset
– ACCUMULATED DEPRECIATION = NET BOOK VALUE
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11. FIXED ASSETS….MEANING
• Definitions
– A long-term, tangible asset held for business use
and not expected to be converted to cash in the
current or upcoming fiscal year, such as
manufacturing equipment, real estate, and
furniture. also called plant.
– Produced assets that are used repeatedly or
continuously in production processes for more
than one year.
– Fixed assets consist of tangible and intangible
assets, as classified in the following slides
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12. FIXED ASSETS CLASSIFICATIONS
• Categories of Fixed Assets
– Dwellings
• Buildings that are used entirely or primarily as
residences, including any associated structures,
such as garages, and all permanent fixtures
customarily installed in residences
• Houseboats, barges, mobile homes and caravans
used as principal residences of households are
also included, as are historic monuments
identified primarily as dwellings. Costs of site
clearance and preparation are also included.
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13. FIXED ASSETS CLASSIFICATIONS
• Categories
–Non-dwellings
• Buildings other than dwellings, including
fixtures, facilities and equipment that are
integral parts of the structures and costs of
site clearance and preparation. Historic
monuments identified primarily as non-
residential buildings are also included.
• Examples include warehouse and industrial
buildings, commercial buildings, buildings for
public entertainment, hotels, restaurants,
educational buildings, health buildings, etc.
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14. FIXED ASSETS CLASSIFICATIONS
Categories
 Other structures
Structures other than buildings, including the cost of the
streets, site clearance and preparation other than for
residential or non residential buildings.
Also included are historic monuments for which identification
as dwellings or non-residential buildings is not possible and
shafts, tunnels and other structures associated with mining
subsoil assets. (Major improvements to land, such as dams
and dikes for flood control, are included in the value of land.)
Examples include highways, streets, roads, railways and
airfield runways bridges, elevated highways, tunnels and
subways waterways, harbours, dams and other waterworks
long-distance pipelines, communication and power lines local
pipelines and cables, ancillary works constructions for mining
and manufacture and constructions for sport and recreation.
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15. FIXED ASSETS CLASSIFICATIONS
• Categories
–Machinery and Equipment
• Transport equipment and other machinery and
equipment, as defined below other than that
acquired by households for final consumption.
• Tools that are relatively inexpensive and
purchased at a relatively steady rate, such as
hand tools, may be excluded. Also excluded is
machinery and equipment integral to
buildings that is included in dwellings and
non-residential buildings.
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16. FIXED ASSETS CLASSIFICATIONS
Categories
 Machinery and equipment
Uncompleted machinery and equipment is excluded,
unless produced for own use, because the ultimate user is
deemed to take ownership only on delivery of the asset.
Machinery and equipment acquired for military purposes
is included to the extent that it resembles goods acquired
by civilian units for purposes of production and that the
military uses in the same way.
Machinery and equipment acquired by households for
final consumption is not treated as an asset. It is instead
included in the memorandum item ‘consumer durables’ in
the balance sheet for households. Houseboats, barges,
mobile homes and caravans used by households as
principal residences are included in dwellings.
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17. FIXED ASSETS CLASSIFICATIONS
• Categories
–Transport equipment
• Equipment for moving people and objects.
Examples include ;vehicles, trailers and semi-
trailers, ships railway and tramway locomotives
and rolling stock aircraft and spacecraft and
motorcycles, bicycles, etc.
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18. FIXED ASSETS CLASSIFICATIONS
• Categories
– Land, underlying buildings and structures
• Land on which dwellings, non-residential buildings and
structures are constructed or into which their
foundations are dug, including yards and gardens
deemed an integral part of farm and non-farm
dwellings and access roads to farms.
– Land under cultivation
• land on which agricultural or horticultural production is
carried on for commercial or subsistence purposes,
including, in principle, land under plantations, orchards
and vineyards
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19. FIXED ASSETS
CLASSIFICATIONS
• Categories
– Recreational land and associated surface water
• Land that is used as privately owned amenity land, parklands
and pleasure grounds and publicly owned parks and
recreational areas, together with associated surface water.
– Land other than associated surface water
• Land not elsewhere classified, including private gardens and
plots not cultivated for subsistence or commercial purposes,
communal grazing land, land surrounding dwellings in excess
of those yards and gardens deemed an integral part of farm
and nonfarm dwellings and associated surface water.
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20. FIXED ASSETS
CLASSIFICATIONS
• Categories
– Sub-soil assets
• Proven reserves of mineral deposits located on or below
the earth’s surface that are economically exploitable,
given current technology and relative prices.
• Ownership rights to the subsoil assets are usually
separable from those to the land itself.
• Subsoil assets consist of coal, oil and natural gas
reserves, metallic mineral reserves and non-metallic
mineral reserves, as defined below.
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21. FIXED ASSETS
CLASSIFICATIONS
• Sub-soil assets
 Coal, oil and natural gas reserves
Anthracite, bituminous and brown coal deposits
petroleum and natural gas reserves and fields.
 Metallic mineral reserves
Ferrous, nonferrous and precious metal ore deposits.
 Non-metallic mineral reserves
Ferrous, nonferrous and precious metal ore deposits.
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22. FIXED ASSETS
CLASSIFICATIONS
• Categories
–Non-cultivated biological resources
• Animals and plants that yield both once only
and repeat products over which ownership
rights are enforced but for which natural
growth and/or regeneration is not under the
direct control, responsibility and management
of institutional units.
– Examples are virgin forests and fisheries within the
territory of the country.
– Only those resources that are currently, or are likely
soon to be, exploitable for economic purposes
should be included
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23. FIXED ASSETS
CLASSIFICATIONS
• Categories
–Cultivated assets
• Livestock for breeding, dairy, draught, etc. and
vineyards, orchards and other plantations of
trees yielding repeat products that are under
the direct control, responsibility and
management of institutional units, as defined
below.
• Immature cultivated assets are excluded unless
produced for own use.
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24. FIXED ASSETS
CLASSIFICATIONS
• Categories
–Cultivated assets
• Trees (including vines and shrubs) cultivated
for products they yield year after year,
including those cultivated for fruits and nuts,
for sap and resin and for bark and leaf
products
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25. FIXED ASSETS
CLASSIFICATIONS
• Categories
–Intangible fixed assets
• Fixed assets that consist of mineral
exploration, computer software,
entertainment, literary or artistic originals and
other intangible fixed assets, as defined below,
intended to be used for more than one year
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26. FIXED ASSETS
CLASSIFICATIONS
• Intangibles..
– Mineral exploration
• The value of expenditures on exploration for
petroleum and natural gas and for non-petroleum
deposits.
• These expenditures include pre-licence costs,
licence and acquisition costs, appraisal costs and
the costs of actual test drilling and boring, as well
as the costs of aerial and other surveys,
transportation costs, etc., incurred to make it
possible to carry out the tests.
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27. FIXED ASSETS
CLASSIFICATIONS
• Intangibles
– Computer software
• Computer programs, program descriptions and
supporting materials for both systems and
applications software.
• Included are purchased software and software
developed on own account, if the expenditure is
large.
• Large expenditures on the purchase, development or
extension of computer databases that are expected
to be used for more than one year, whether
marketed or not, are also included
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28. FIXED ASSETS
CLASSIFICATIONS
• Intangibles
– Entertainment, literary, etc
• original films, sound recordings, manuscripts, tapes, models,
etc., on which drama performances, radio and television
programmes, musical performances, sporting events, literary
and artistic output, etc., are recorded or embodied. Included
are works produced on own account. In some cases, such as
films, there may be multiple original
– Other intangibles
• New information, specialised knowledge, etc., not elsewhere
classified, whose use in production is restricted to the units
that have established ownership rights over them or to other
units licensed by the latter.
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29. FIXED ASSETS
CLASSIFICATIONS
Intangibles
Patents
Inventions in categories of technical
novelty that, by law or by judicial decision,
can be afforded patent protection.
Examples include constitutions of matter,
processes, mechanisms, electrical and electronic
circuits and devices, pharmaceutical
formulations and new varieties of living things
produced by artifice.
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30. FIXED ASSETS
CLASSIFICATIONS
• Others
– Leases or contracts where the lessee has the right
to convey the lease to a third party independently
of the lessor.
• Examples include leases of land and buildings and other
structures, concessions or exclusive rights to exploit
mineral deposits or fishing grounds, transferable
contracts with athletes and authors and options to buy
tangible assets not yet produced.
• Leases on the rental of machinery are excluded from
non-financial intangible assets
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31. FIXED ASSETS…NATURE…
• Conclusion
– Fixed Asset are tangible assets of an entity
without which the entity may not be able to
provide the desires products and services it offers
to the public
– It is an essential aspect of entity's accounting
structure as seen in the accounting equation:
Assets = Owner’s Equity + Liability
– Fixed assets remains a focal point of investors
who are interested in making investments in
entities.
– managing fixed assets must be taking seriously by
agencies to ensure it delivers the desired services
to the agency
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