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ACCOUNTING STANDARD-10
ACCOUNTING FOR FIXED ASSETS
Presentation By
• Kunal
• Vikas
• Nil
• Mayur

FIXED ASSETS
Fixed asset is an asset held with the intention of being used for the
purpose of producing or providing goods or services and is not held for
sale in the normal course of business.
Buildings, real estate, equipment and furniture are good examples of
fixed assets.
Fixed assets also referred as PPE (Property, Plant, and Equipment)

FAIR MARKET VALUE
Fair market value is the price that would be agreed to in an open and
unrestricted market between knowledgeable and willing parties dealing
at arm’s length who are fully informed and are not under any compulsion
to transact.

GROSS BOOK VALUE
Gross book value of a fixed asset is its historical cost or other amount
substituted for historical cost in the books of account or financial
statements. When this amount is shown net of accumulated
depreciation, it is termed as net book value.

NATURE OF FIXED ASSETS
• They are acquired for relatively long period for carrying on business of
the enterprise.
• They are not intended for resale in the ordinary course of business.

MODE OF VALUATION OF FIXED ASSETS
1. Cost Method
In this method, valuation of assets is made on the basis of purchase
price of the assets. It is very simple method of valuation of assets.
Sometimes, existence of one assets depends on the existence of
another. Then it is difficult to use this method.
For example,
For transporting employees or goods or products purchased or sold by the company.
They are not meant for resale and hence while valuing them the “going
concern” concept of accounting is quite relevant.
• Going concern: A term for a company that has the resources needed in order to
continue to operate indefinitely. If a company is not a going concern, it means the
company has gone bankrupt.

2. Market Value Method
Valuation of assets can be made on the basis of market price of such
assets. But if same nature of assets is not available in the market, it is
very difficult to determine the value of such assets. So, there are two
methods related to it. They are:

MARKET VALUE METHOD
I. Replacement Value Method
If same asset is to be purchased then on the basis of same value,
valuation of assets can be done.
II. Net Realizable Value
It refers to the price in which such asset can be sold in the market.
But expenditure incurred at the sale of such asset should be deducted.

3. Base Stock Method
Under this method of valuation, company should maintain certain
level of stock and valuation of stock is made on the basis of valuation of
base stock.
4. Standard Cost Method
Some of the business organizations fix the standard cost on the basis
of their past experience. On the basis of standard cost, they make
valuation of assets and present in the balance sheet.

COMPONENTS OF FIXED ASSETS
1. Cost of fixed asset = purchase price + other cost is also consider
2. Administration or general overhead excluded from cost of fixed asset.
[Rent, Salary, Do not include one time cost]
3. Expenditure of start up & commissioning is included
4. Some time treated as deferred revenue expenditure

ACCOUNTING FOR REVALUED FIXED ASSETS
• The following information should be disclosed in the financial
statements.
• Gross and net book values of fixed assets at the beginning and end of
an accounting period showing additions, disposals, acquisitions and
other movements
• Expenditure incurred on account of fixed assets in the course of
construction or acquisition
• Revalued amounts substituted for historical costs of fixed assets, the
method adopted to compute the revalued amounts, the nature of
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.

VALUATION OF FIXED ASSETS IN SPECIAL CASES
• Fixed assets acquired on hire basis
• Fixed asset owned jointly
• Fixed asset acquired for a consolidated price

FIXED ASSETS OF SPECIAL TYPE
• Goodwill, in general, is recorded in the books only when some
consideration in money or money’s worth has been paid for it.
(Payable either in cash or in shares or otherwise)
• As a matter of financial prudence, goodwill is written off over a period.

DISCLOSURE OF FIXED ASSETS
• Gross and net book values of fixed assets at the beginning and end of
an accounting period showing addition, disposals, acquisitions.
• Expenditure incurred on account of fixed assets in course of
construction or acquisition.
• Relevant amounts substituted for historical costs of fixed assets.

DISTINCT BETWEEN FIXED ASSETS & CURRENT ASSETS
Basis of distinction Fixed assets Current assets
Valuation Cost less depreciation Cost or market whichever lower
Subject to change Not Yes
Pledge Can not be Can be
Fixed v/s Floating charge Fixed charge Floating charge
Nature of profit on sale Capital nature Revenue nature
Sources of finance Long term fund Short term fund

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