Page 220 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes Objectives

After studying this unit, you will be able to:
 Understand the meaning and definition of fixed assets

 Define the method of accounting of historical cost
 Have the valuation of fixed assets
 Describe method of accounting for revalued assets
 Evaluate tangible fixed assets in special cases
 Describe fixed assets of special type (intangible assets) and disclosure of fixed assets
 Define the meaning, definition and significance of depreciation on fixed assets

 Know the methods of depreciation on fixed assets
 Differentiate ‘Provision’ and ‘Reserves’
 Discuss the different type of ‘Provisions’ and ‘Reserves’ and the accounting thereof.

Introduction

Fixed assets comprise a significant portion of the total assets of the business. Therefore, their
presentation in the financial statements is important. The fixed assets also play an important
role in the determination of profit and depicting the financial position of the business.

Did u know? Why is it being considered as a cumbersome task in matching?
The benefits/revenues of the fixed assets are expected to accrue for many numbers of
years but not within a year. The initial investment on the assets at the time of purchase
should be matched against the revenue pattern of the same year after year in order to find
out the profitability of the long term investment.

10.1 Meaning and Definition of Fixed Assets

In many enterprises the fixed assets are grouped into various categories such as land, buildings,
plant and machinery, vehicles, furniture and fittings, goodwill, patents, trademarks and designs.

Did u know? What are the items which are not covered under fixed assets?
Under the fixed assets the following items are not considered on which special
considerations apply:
1. Forests, plantations and similar regenerative natural resources,

2. Wasting assets including mineral rights, expenditure on the exploration for and
extraction of minerals, oil, natural gas and similar non-generative resources,
3. Expenditure on real estate development, and

4. Livestock.
As per Accounting Standard - 10 (AS - 10) “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

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