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I. OBJECTIVE
1. To provide guidelines on the accounting policy for fixed assets
II. DEFINITION OF TERMS
1. Fixed Asset – refers to tangible assets of the company. It includes land, buildings, equipments, machineries, vehicles, etc. that cannot easily be consumed or are not expected to be converted to cash sooner
III. GENERAL POLICIES
The cost of the asset shall be recognized if and only if:
• It is probable that future economic benefit will flow to the entity
• Its cost can be measured reliably
• It is expected to be used for more than one accounting period
Measurement:
a) Initial Measurement
• Cost of the fixed asset
• Shipping and delivery
• Installation charges
• Other costs incurred in preparing the asset for its intended use
b) Subsequent Measurement
Book value of the asset is the asset’s initial measurement plus the other charges that will prolong the life of the asset and make it more efficient less the salvage/residual value less accumulated depreciation less accumulated impairment losses.
The straight-line method of depreciating the assets shall be used. The asset shall be depreciated on the nearest month the asset was purchased.
Depreciation = (Cost – Salvage or Residual Value) ÷ Useful Life of Asset
Useful Life of Fixed Assets
Fixed Asset: Useful Life:
Furniture & Fixtures 7
Computers and Peripheral Equipments 5
Computer Software 3
Machinery & Equipment 6
Automobiles 5
Assets are removed in the accounts:
• On disposal (sale, by entering into finance lease or by donation)
• When no future economic benefits are expected from its use or disposal
Gain or Loss on disposal shall be recognized in profit or loss. Gains are not recognized as revenue but as other income. Replaced part of an item PPE shall be derecognized regardless whether they are depreciated separately or not. Gain or loss on disposal is the difference between net disposal proceeds and carrying value.
Fixed assets are long-term assets and therefore they are included in the Non-Current Assets section of the Balance Sheet as a separate line item. Only the net carrying amount is reflected in the face of the Balance Sheet. The items with their corresponding fixed asset are to be found in the Notes to the Financial Statement.
• Land – It includes acquisition cost and transaction cost directly attributable to its purchase. It is not subject to depreciation.
• Land Improvements – It includes the costs of developing and upgrading of the land.
• Building – It includes acquisition cost and transaction cost directly attributable to its purchase. It is subject to depreciation.
• Building Improvements – It is a capital event that materially extends the useful life of a building or increases its value, or both. It is subject to depreciation.
• Machinery – It includes the machineries used in the production. It also includes machines used in the office such as fax and photocopying machine. It is subject to depreciation.
• Equipment
a) Office – It includes equipments such as air conditioner, TV, computers, printers, CPU, fan, etc. It is subject to depreciation.
b) Store – It includes equipments such as rice cooker, freezer, boiler, etc. It is subject to depreciation.
c) Delivery – It includes the vehicle used for the delivery of products. It also includes motorcycles. It is subject to depreciation.
• Furniture and Fixtures
a) Office – It includes office table, chairs, drawers, cabinet, locker, vault, etc. It is subject to depreciation.
b) Store – It is subject to depreciation.
• Leasehold Improvements – Improvements performed on a leased property, such as additions, alterations, remodeling, or renovations. All leasehold improvements are capitalized (recorded as an asset with a corresponding liability) and amortized over the remaining life of the lease term or the life of the improvement (whichever is shorter). Upon termination of the lease, such improvements normally become the property of the owner (lessor) without any cost or obligation.
• Accumulated Depreciation – A contra asset account. The account title credited in depreciating a fixed asset.
IV. PROCEDURE FLOWCHART
Flowchart Title
(Not Applicable)
V. REFERENCE/INTERFACE PROCESS
Document Title
1. Summary of Accounting Policies
VI. FORMS AND RECORDS
Form Title
(Not Applicable)
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