ACCOUNTING FOR FIXED ASSETS
Introduction
An asset is a resource acquired for use in a business. A distinction is made in accounting between "current assets" and " "fixed assets". Current assets are those assets that form part of the working capital of a business. They are assets whose benefits are expected to be realized within one accounting period. They are replaced frequently or converted into cash during the course of trading and therefore they are short term in nature e.g. stock, prepayments, debtors, cash and bank. A fixed asset is an asset of a business intended for continuing use, rather than a hort-term, temporary asset such as stocks. Fixed assets are assets acquired for use in the business and not for resale in the ordinary course of business. Their use value extends beyond one accounting period and therefore they are long-term in nature e.g. furniture, buildings, plant and machinery, motor vehicles, fittings
etc. This chapter will present the accounting for fixed assets. This chapter overs the recognition, valuation and presentation of fixed assets and the provision of depreciation expense.
Objectives:
After studying this chapter you should be able to:
• Identify the various types of long term assets
• Distinguish between capital and revenue expenditure
• Identity the relevant cost of fixed assets.
• Appreciate methods of estimating depreciation expense
• Draw ledger accounts for fixed assets and depreciation
• Account for disposal of assets
• Draw schedule of fixed assets
Key Terms
Assets: Resources acquired for use in the business e.g. stock, motor vehicles
Tangible Assets: Assets with a physical existence land, buildings and machinery.
Intangible Assets: Assets without a physical existence e.g. goodwill, patent rights.
Current Assets: Assets expected to be realised within one accounting period eg cash, debtors
Fixed Assets: Fixed assets are assets acquired for use in the business and not for resale in the ordinary course of business.
Classification of Long-term assets-
Fixed assets can be classified in a company's balance sheet as intangible, tangible, or investments. Tangible fixed assets are those fixed assets with a physical existence e.g. Land and buildings, furniture and fitting, etc. Intangible fixed assets are those fixed assets without physical existence. Examples of intangible fixed assets include:
1. Goodwill; this is an asset created by a business over time through its location,
reputation skills of workers etc.
2. Patent right and trademarks; legal right to a product or an art or device of production.
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Introduction
An asset is a resource acquired for use in a business. A distinction is made in accounting between "current assets" and " "fixed assets". Current assets are those assets that form part of the working capital of a business. They are assets whose benefits are expected to be realized within one accounting period. They are replaced frequently or converted into cash during the course of trading and therefore they are short term in nature e.g. stock, prepayments, debtors, cash and bank. A fixed asset is an asset of a business intended for continuing use, rather than a hort-term, temporary asset such as stocks. Fixed assets are assets acquired for use in the business and not for resale in the ordinary course of business. Their use value extends beyond one accounting period and therefore they are long-term in nature e.g. furniture, buildings, plant and machinery, motor vehicles, fittings
etc. This chapter will present the accounting for fixed assets. This chapter overs the recognition, valuation and presentation of fixed assets and the provision of depreciation expense.
Objectives:
After studying this chapter you should be able to:
• Identify the various types of long term assets
• Distinguish between capital and revenue expenditure
• Identity the relevant cost of fixed assets.
• Appreciate methods of estimating depreciation expense
• Draw ledger accounts for fixed assets and depreciation
• Account for disposal of assets
• Draw schedule of fixed assets
Key Terms
Assets: Resources acquired for use in the business e.g. stock, motor vehicles
Tangible Assets: Assets with a physical existence land, buildings and machinery.
Intangible Assets: Assets without a physical existence e.g. goodwill, patent rights.
Current Assets: Assets expected to be realised within one accounting period eg cash, debtors
Fixed Assets: Fixed assets are assets acquired for use in the business and not for resale in the ordinary course of business.
Classification of Long-term assets-
Fixed assets can be classified in a company's balance sheet as intangible, tangible, or investments. Tangible fixed assets are those fixed assets with a physical existence e.g. Land and buildings, furniture and fitting, etc. Intangible fixed assets are those fixed assets without physical existence. Examples of intangible fixed assets include:
1. Goodwill; this is an asset created by a business over time through its location,
reputation skills of workers etc.
2. Patent right and trademarks; legal right to a product or an art or device of production.
Download Full Notes
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