fa c01_1 tangible fixed assets

8/12/2019 FA C01_1 Tangible Fixed Assets

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Financial Accounting

Prof. Adriana Tiron-Tudor - course

Lect. Szilveszter Fekete - practice

att

Agenda course 1-2

1. Objectives

2. Assets definition and recognision

3. Tangible assets

4. Depreciation

5. Recording of the transactions with tangible assets


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That tangible assets

represent a significant portion of both total and fixed assets

are physically observable items, held for use in theproduction, sale or supply of goods or services, for rental toothers, or for administrative purpose, and are expected to beused during more than one period

are different from inventories

1. Objectives

After studying this chapter, you will understand:

How to

distinguish capital expenditures and revenue expenditures

record internally constructed tangible assets

handle financing or borrowing ( interest) cost

1. Objectives

What

the concept of depreciation represents

the main methods of depreciation are

the main concepts are that allow the preparation of a

depreciation schedule


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An asset represents a source controlled by the entity

as a result of past events

which is expected to generate future economic benefits for theentity

with a cost that can be credibly evaluated;


An asset is recorded in the balance sheet when:Future economic benefits are likely to be realized as a result ofkeeping (storing), using, selling that certain asset;

That certain asset has a cost or a value that can be evaluatedcredibly.

The recognition of the assets in the balance sheetusually takes place along with the recognition of adebt or an income in the profit and loss account (theprinciple of the connection between the expenses

and incomes).

Acquisition Asset = Supplier (2=4)

Internally constructed Asset = Capitalised costs (2=7)



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In most counties of the Western Europe, thepatrimonial assets are presented in the reverseorder of liquidity, as follows:

Non-current assets intangible assets

tangible assets

financial assets

Current assets inventory

receivable

short term investments

cash

Regulation assets pre-payments


The non-current assets are also called investment goods, long term assets or immobile

goods.

have the following characteristics:

A period of utilization longer than a year; They participate in the development of multiple economic

circuits; they are not consumed nor replaced at their firstutilization.

They are fixed in the activity of the patrimonial unit; they arentdirectly destined for sale.

They are held for use in the production or supply of goods orservices, for rental to others or for administrative purpose



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Questions/Discussion

A company buys 10 trucks with the payment in

2 weeks. Where will be recorded the trucksknowing that the companys object of activityis :

a. transport

b. constructions

c. trade with vehicles

What do you think ?

Which is the proportion that tangible assets

represent in balance sheet in each case.



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birth life death

Definition/

Recognition

Measurement

Acquisition cost

Production cost

Depreciation

Subsequentexpenditures

Capitalexpenditures

Sale

Removing afully

deprediatedasset fromthe books

3. Tangible assets

Accounting issues in reporting tangible assets

3. Tangible assets


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3. Tangible assets

are also called investment goods, long term assets orimmobile goods.

have the following characteristics:

A period of utilization and liquidation longer than ayear;

They participate in the development of multipleeconomic circuits; they are not consumed norreplaced at their first utilization.

They are fixed in the activity of the patrimonialunit; they arent directly destined for sale.

RO value higher than 1.800 Ron

3. Tangible assets


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Contains the material goods of long utilization in theactivity of the entity.

According to the IAS 16 a tangible asset must beacknowledged in the balance sheet if:

It is estimated to generate economic benefitsfor the artificial person and

The cost of the asset can be evaluated credibly

Are recorded at cost. cost consists of all expenditures necessary to acquire

the asset and make it ready for its intended use.

3. Tangible assets

In the category of the tangible assets are contained:

The land

Land improvements

Buildings

Plant, machinery, motor vehicles etc. Equipments and furniture

Tangible assets in progress

Payments on account

3. Tangible assets


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1. Land and land improvements are recordedon two categories: land and landimprovements.

The land can be displayed on the following

categories: build on lands, non build on lands, landswith deposits, agricultural, forest lands etc.

The land improvements are investmentseffectuated and destined to enrich the lands, lakes,swamps, other similar elements but also irrigationsystems, works of access, recordation at the energysources, embankments etc.

3. Tangible assets

Acquisitions

Cost of Land Includes:

the cash purchase price

closing costs such as title and attorney's fees

real estate brokers commissions accrued property taxes and other liens on the land

assumed by the purchaser.

3. Tangible assets


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All expenditures necessary to make the improvements readyfor their intended use.Examples:

Drive ways Parking lots Fences Underground sprinklers

Cost of Land Improvements include:

3. Tangible assets

The buildings contain halls, administrativebuildings, warehouses, including thenecessary installations (heat, telephone,energy, water etc.) where theenterprises activities take place:

production,

services,

commerce,

administration etc.

3. Tangible assets


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When a building is purchased suchcosts include the: purchase price closing costs (attorney's fees title

insurance)

real estate broker's commissions.

Cost of making a building ready forits intended use consist of: expenditures for remodeling rooms or offices replacing or repairing

roof floors electrical wiring plumbing

3. Tangible assets

Buildings cost includes all necessary expendituresrelating to the purchase or construction of a building

When a building is constructed, its costconsists of:

the contract price

architect's fees

building permits

excavation cost

interest costs duringduring construction.

3. Tangible assets


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The plant, motor vehicles, animals and plantationscontain the machines, machinery, work installations,measurement, control and adjustment devices and

installations, motor vehicles, working animals andplantations with crop.

The electric and calculation equipments, furniture,office equipments, protection equipments of human andmaterial values and other tangible assets.

3. Tangible assets

Store check-out counter

Office furniture

Factory Machinery

Delivery Equipment

Trucks

Airplanes

Examples of Equipment

3. Tangible assets


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The tangible assets in progress contain the tangibleassets received from the third parties and withoutreceipt, respectively the unfinished investmentseffectuated under own administration or enterprise etc.Content:cost of purchasing, constructing and installingTA ahead of their productive use

Payment in account payment made by a company

towards the acquisition of as yet undelivered tangibleassets

3. Tangible assets

Internally generatedValued at Production cost

Cost of raw materials ans components

Cost of labor that was directly involved in generation

Overheads ( indirect costs) energy, supervisory labor

Financial costs (interests costs IAS 23)

3. Tangible assets

A company build oneself an equipment.

The total cost is 100 lei: salaries 55 lei, raw materials 20 lei,overheads 15 lei.

The useful life of the equipment is 5 years

Straight method is used.


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3. Tangible assets

Difference between tangible assets and inventories

Criteria: nature of companys activity which determines thepurpose for which the asset is held.

Distinction importance

It affects the timing of income recognition

TA annual depreciation expenseInventory - not

Example:

What kind of asset is an ox ?( p.233)

3. Tangible assets


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Ordinary RepairsExpenditures to maintain the operatingefficiency and expected productive life ofthe asset.

Are usually small in amount that occurfrequently throughout the service life.

Examples:

motor tune-ups oil changes

the painting of buildings

the replacing of worn-out gears

Ordinary repairs increase Repair Expenseand are revenue expenditures

Ordinary repairs (6)

3. Tangible assets

Additions and Improvements (2)

Costs incurred to increase the:

operating efficiency

productive capacity or

expected useful life of the plant asset.

Are usually material in amount and occur infrequently during the period ofownership.

Are capital expenditures.

Ex: building a new floor

3. Tangible assets

fa c01_1 tangible fixed assets

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