Accounting Standard 10

Accounting Standard 10

Accounting for Fixed Assets

Note: AS 10 is mandatory in nature and each and every entity has to follow it.

Meaning of fixed assets:-

                Fixed assets are assets held for use in production of goods or rendering of services or for office/administrative use.

                Examples: Plant and machinery, Land and building e.t.c

Fixed Assets do not include the following:

•  Forests, plantations and similar regenerative natural resources.
• Wasting assets including mineral rights, expenditure on the exploration for and extraction of mineral, oils, natural gas and similar non-regenerative resources.
•  Expenditure on real estate development and
• Livestock

Recognition of Fixed assets:

Fixed assets should be recognized in books at cost or revalue amount.

                Meaning of Cost:

1)      For a purchased fixed asset.

Purchase Price                          ...............

+ Taxes on purchase               .................

+ Installation Expenses          .................

+ Interest on loan till the

asset is ready for use             .................

= Cost Price                                                .................

2)      For self generated asset.

Recognized at cost incurred for generation of asset. (These expenses do not include opportunity costs.)

3)      Exchanged fixed asset.

If fixed assets are acquired in exchange of other asset then value of fixed asset is

Fair value of Asset acquired.

                        Or

Fair value of Asset given.

        Whichever is more clearly evident.

 Note: Assume if none is clearly evident then lower of the above is the value of fixed asset.

4)      Improvement in fixed asset.

Whenever expenditure is incurred on improvement of fixed assets then such expenditure is capitalized provided performance of asset improves beyond standard and expenditure is material. Otherwise the expenditure will be written off in profit and loss account.

Revaluation of fixed assets:

                Revaluation means change in value of fixed asset. Change can be an upward change or downward change.

                      a)      Journal entry on upward change or upward revaluation:

                      Fixed assets account                      Dr.          ......................

                                To revaluation reserve a/c                                           ......................

                       b)      Journal entry on downward revaluation:

                      Revaluation Reserve account     Dr.          ......................

                      Profit and Loss account             Dr.          ......................

                                To Fixed asset   a/c                                                          ......................

Note: Revaluation reserve cannot be used for payment of dividend or for writing off losses or for bonus issue.

Note: Revaluation of assets is not mandatory.

Disclosure Requirements:

                Gross block and net block on opening and closing should be disclosed.

                Depreciation should be disclosed.

                Revaluation policy should be disclosed.

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