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TMI BlogAccounting for Fixed Assets [Before 30-3-2016]X X X X Extracts X X X X X X X X Extracts X X X X ..... s but applies to financial statements prepared on historical cost basis. 3. This standard does not deal with accounting for the following items to which special considerations apply : ( i ) forests, plantations and similar regenerative natural resources; ( ii ) wasting assets including mineral rights, expenditure on the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources; ( iii ) expenditure on real estate development; and ( iv ) livestock. Expenditure on individual items of fixed assets used to develop or maintain the activities covered in (i) to (iv) above, but separable from those activities, are to be accounted for in accordance with this Standard. 4. This standard does not cover the allocation of the depreciable amount of fixed assets to future periods since this subject is dealt with in Accounting Standard 6 on Depreciation Accounting . 5. This standard does not deal with the treatment of government grants and subsidies, and assets under leasing rights. It makes only a brief reference to the capitalisation of borrowing costs and to assets acquired in an amalgamation or merger. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice separable, and estimates are made of the useful lives of these components. For example, rather than treat an aircraft and its engines as one unit, it may be better to treat the engines as a separate unit if it is likely that their useful life is shorter than that of the aircraft as a whole. 9. Components of Cost 9.1 The cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Examples of directly attributable costs are: ( i ) site preparation; ( ii ) initial delivery and handling costs; ( iii ) installation cost, such as special foundations for plant; and ( iv ) professional fees, for example fees of architects and engineers. The cost of a fixed asset may undergo changes subsequent to its acquisition or construction on account of exchange fluctuations, price adjustments, changes in duties or similar factors. 9.2 Administration and other general overhead expenses are usually exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... net book value of the asset given up; in each case an adjustment is made for any balancing receipt or payment of cash or other consideration. 11.2 When a fixed asset is acquired in exchange for shares or other securities in the enterprise, it is usually recorded at its fair market value, or the fair market value of the securities issued, whichever is more clearly evident. 12. Improvements and Repairs 12.1 Frequently, it is difficult to determine whether subsequent expenditure related to fixed asset represents improvements that ought to be added to the gross book value or repairs that ought to be charged to the profit and loss statement. Only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity. 12.2 The cost of an addition or extension to an existing asset which is of a capital nature and which becomes an integral part of the existing asset is usually added to its gross book value. Any addition or extension, which has a separate identity and is capable of being used after the existing asset is disposed of, is accounted for separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement except that, to the extent that such a decrease is considered to be related to a previous increase on revaluation that is included in revaluation reserve, it is sometimes charged against that earlier increase. It sometimes happens that an increase to be recorded is a reversal of a previous decrease arising on revaluation which has been charged to profit and loss statement in which case the increase is credited to profit and loss statement to the extent that it offsets the previously recorded decrease. 14. Retirements and Disposals 14.1 An item of fixed asset is eliminated from the financial statements on disposal. 14.2 Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the profit and loss statement. 14.3 In historical cost financial statements, gains or losses arising on disposal are generally recognised in the profit and loss statement. 14.4 On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Disclosure of Accounting Policies and Accounting Standard 6 on Depreciation Accounting . 17.2 Further disclosures that are sometimes made in financial statements include: ( i ) gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements; ( ii ) expenditure incurred on account of fixed assets in the course of construction or acquisition; and ( iii ) revalued amounts substituted for historical costs of fixed assets, the method adopted to compute the revalued amounts, the nature of any indices used, the year of any appraisal made, and whether an external valuer was involved, in case where fixed assets are stated at revalued amounts. Main Principles 18. The items determined in accordance with the definition in paragraph 6.1 of this Standard should be included under fixed assets in financial statements. 19. The gross book value of a fixed asset should be either historical cost or a revaluation computed in accordance with this Standard. The method of accounting for fixed assets included at historical cost is set out in paragraphs 20 to 26; the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted depreciation existing at the date of the revaluation should not be credited to the profit and loss statement. 30. An increase in net book value arising on revaluation of fixed assets should be credited directly to owners interests under the head of revaluation reserve, except that, to the extent that such increase is related to and not greater than a decrease arising on revaluation previously recorded as a charge to the profit and loss statement, it may be credited to the profit and loss statement. A decrease in net book value arising on revaluation of fixed asset should be charged directly to the profit and loss statement except that to the extent that such a decrease is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it may be charged directly to that account. 31. The provisions of paragraphs 23, 24 and 25 are also applicable to fixed assets included in financial statements at a revaluation. 32. On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value should be charged or credited to the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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