AS -10 (Accounting for Fixed Assets)

Fixed Assets ?

It is an assets , which is

1. Held for purpose of producing or providing goods or services
2. Not held for sale in the normal course of business
3. Expected to be used for more than one accounting period

like Land, building (freehold, leasehold) Plant & machinery, furniture , vehicles, computers

Site preparation for existing assets will be considered as revenue expense not capital expense

Interest on loan will be considered as capital expenses till the assets is ready for use not put to use.

Example :  The company constructed of fixed assets internally . The cost of construction was

1. Material of Rs.10 lacs (Purchased by production deptt at 8 lacs)
2. Labour 2 Lacs
3. Director salary

Internal profit to be eliminated.  Fixed assets should be taken at original price at which it purchased from party. If  a deptt transfer assets to another deptt by taking some profit, that should be ignored.

In above case fixed assets was purchased at Rs.8 lacs but transferred at Rs.10 lacs. So original cost should be taken that is Rs. 8 lacs plus Labour 2 lacs so cost of fixed assets will be Rs.10 lacs.

Example :   The company purchased machinery for Rs.100 lacs from GK & Co. It paid to GK & Co. as follows : 

1. Advance Rs.10 lacs 
2. Balance 85 lacs in full & final settlement after one year

At the time of purchase fixed assets to be booked at full value Rs.100 lacs. After full settlement it will decrease fixed asset value.

Example : The company exchanged its old machine for new machinery. Price of old machine as per book value is Rs.16800. it paid 6000 more for the new machinery . however if the machinery had purchased in cash it would have cost Rs.20500

We have to book loss on old machinery and should show new machinery at actual price Rs.20500

Loss = 16800+6000-20500 = 2300

Machinery New    A/c    Dr    20500

P&L                         A/c    Dr      2300

          To cash                                        6000

          To Machinery old                    16800

Asssets retired from use (Assets held for disposal)

They are stated at the lower of

1.Book value

2.Net realisable value

Treatment of cenvat

50% of excise duty paid on input in current year and remaining 50% in next year.  In next year benefit of input cenvat can be taken in any month but at the time of benefit taken , asset should exist

Treatment  in case of revaluation of fixed assets

1. If assets are revalued at more than book value , create revaluation reserve not book the profit
2. At the time of assets sale , first adjust revaluation reserve account
3. At the time of assets sale book profit or loss through P&L a/c
4. If assets are revalued at less than the book value, book lose through P&L a/c

Case 1 : Assets purchased for 100 lacs . it is revalued at Rs.105 lacs. Pass the entries

Fixed Assets     A/c     Dr.  100 lacs 

   To Bank                        100 lacs  

 

Fixed assets      A/c    Dr.  5 lacs

Revaluation Reserve       5 lacs

Case 2 : suppose in case1 later the fixed assets value is reduced to 98 lacs. Pass the entries

Revaluation Reserve     A/c   Dr.  5lacs

P&L                              A/c   Dr.  2lacs

      To Fixed Assets                              7Lacs

Case 3 : Assets purchased 100 lacs. It was revalued at 91 lacs later its value increased to 105 lacs. Pass the entries

Fixed Assets    A/c  Dr.  100 lacs

To Bank                              100 lacs

 

P&L        A/c     Dr.   9lacs 

To Fixed Assets        9 lacs 

 

Fixed Assets    Dr.  14 lacs

To P&L                              9 lacs

To revaluation reserve      5 lacs

Case 4 :  Assets purchased for Rs.100 lacs. Revalued at 108 lacs. later on  sold for Rs.110 lacs

Fixed Assets    A/c    Dr. 100 Lacs        

To Bank                      100 Lacs 

 

Bank  A/c                           Dr. 110 L

Revaluation Reserve  A/c  Dr.     8  L

To fixed Assets   A/c           108 L

To P&L     A/c                        10 L

 

Fixed Assets         A/c  Dr.  8L

To revaluation Reserve      8L

Case 5 :   Purchased 100 lacs, revalued at 108 lacs, sold at Rs.106 lacs. Entries ?

Fixed Assets    A/c    Dr. 100 Lacs                   

To Bank                            100 Lacs          

 

Bank                               A/c  Dr. 106 L

Revaluation Reserve      A/c  Dr.     8  L

To fixed Assets               A/c     108 L

To P&L                            A/c     6 L

 

Fixed Assets         A/c  Dr.  8 L

To revaluation Reserve      8 L

Case 6  : Fixed Assets purchased Rs.100 Lacs. Revalued at Rs.90 Lacs. Sold at Rs.88 Lacs

Fixed Assets     A/c    Dr. 100 Lacs                 

To  Bank                       100 Lacs                   

 

Bank       A/c     Dr.  88 L

P&L        A/c     Dr.     2 L

To Fixed Assets            90L

 

P&L       A/c      Dr. 10 lacs

To Fixed Assets        10 lacs

Case 7  : Fixed Assets purchased Rs.100 Lacs. Revalued at Rs.90 Lacs. Sold at Rs.93 lacs

Fixed Assets     A/c    Dr. 100 Lacs                  

To  Bank                           100 Lacs                   

 

Bank       A/c     Dr.  93 L

To Fixed Assets            90L

To P&L                            3L

 

P&L       A/c      Dr. 10 lacs

To Fixed Assets        10 lacs

Treatment in conversion of Fixed Assets to current Assets