AS 10 - Accounting for Fixed Assets
Purpose: This standard deals with accounting for Fixed Assets
Revaluation of Fixed Asset
When a fixed asset is revalued in financial statements, an entire class of assets should be revalued, or the selection of assets for revaluation should be made on a systematic basis. This basis should be disclosed.
The revaluation in financial statements of a class of assets should not result in the net book value of that class being greater than the recoverable amount of assets of that class.
When a fixed asset is revalued upwards, any accumulated depreciation existing at the date of the revaluation should not be credited to the profit and loss statement.
An increase in net book value arising on revaluation of fixed assets should be credited directly to owner's interests under the head of revaluation reserve,except that, to the extent that such increase is related to and not greater than a decrease arising on revaluation previously recorded as a charge to the profit and loss statement, it may be credited to the profit and loss statement.
A decrease in net book value arising on revaluation of fixed asset should be charged directly to the profit and loss statement except that to the extent that such a decrease is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised,it may be charged directly to revaluation reserve account.
On disposal of a previously revalued item of fixed asset, the difference between net disposal proceeds and the net book value should be charged or credited to the profit and loss statement except that to the extent that such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised, it may be charged directly to that account.
Fixed Assets acquired on Hire Purchase: Fixed assets acquired on hire purchase terms should be recorded at their cash value, which if not readily available, should be calculated by assuming an appropriate rate of interest. This should be shown in the balance sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof.
Joint Ownership: In the case of fixed assets owned by the enterprise jointly with others, the extent of the enterprise's shares in such assets, and the proportion of the original cost, accumulated depreciation and written down value should be stated in the balance sheet. Alternatively, the pro rata of such jointly owned assets may be grouped together with similar fully owned assets with an appropriate disclosure thereof.
Fixed Assets of Special Types
Goodwill is recorded in the books only when some consideration in money or money's worth has been paid for it and this goodwill should be written off over a period of time.
The direct costs incurred in developing the patents should be capitalised and written off over their legal term of validity or over their working life, whichever is shorter.
Amount paid for know how for the plans, layout and designs of buildings, or design of the machinery should be capitalised under the relevant asset heads, such as, buildings, plant and machinery etc. Where the amount paid for know-how is a composite sum in respect of both the manufacturing process as well as plans, drawings and designs for buildings, plant and machinery etc., the management should apportion such consideration into two parts on a reasonable basis.
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