MGT101 New Study Material Modules 1-18 Set 3

CHAPTER - 10 · ACCOUNTING FOR FIXED ASSETS · AND DEPRECIATION · Sr. · No · Course Outline Topics · Basic Definition and Concept · Depreciation Methods and Depreciation Rates · Basic Depreciation Accounting · Disposal of Fixed Assets - Accounting Entries

Disposal of Fixed Assets - at the beginning of the year (for Loss) Disposal of Fixed Assets - at the beginning of the year (for Gain) Disposal of Fixed Assets - during the year – (for Loss) Disposal of Fixed Assets - during the year – (for Gain) Exchange of Asset

Topic videos 87-95 are mandatory part of this module · Basic Definitions and Concepts · Property Plant and Equipment

These are asset that will be used over a period of time (in excess of one year) These are not held for re-sale in the normal course of trading These may be held for: Production of goods or services Selling of goods or services Administrative purposes Rental to others

Recognition Criteria Cost can be measured reliably Probability of inflow of economic benefits in future

Measurement At recognition o Purchased constructed/manufactured assets are initially measured at cost o Exchanged assets are initially measured at fair value, unless: The exchange transaction lacks commercial substance or Fair value cannot be determined, in these circumstances; carrying amount of the asset given up will be the value of the asset taken in exchange.

After recognition After once recognized the items of property, plant and equipment are measured at either of the two models: o Cost model Cost of asset less accumulated depreciation less accumulated impairment loss o Revaluation model (not in syllabus) Revalued amount less accumulated depreciation subsequent to revaluation and accumulated impairment loss subsequent to revaluation. Cost components Purchase price less trade discounts and rebates Import duties Non-refundable purchase taxes Directly attributable cost Estimated cost of dismantling, removal and site restoration

Directly attributable cost is the cost that is incurred to bring the asset into a condition, which is necessary for it to be capable of use as intended by management of entity.

Impairment loss (not in syllabus) When carrying amount of asset is greater than its recoverable amount the difference is Impairment Loss.

Depreciation Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life Cost of an asset, or other amount substituted for cost, less its residual value

Useful life Period over which an asset is expected to be used; or Number of production units expected to be obtained from the asset Depreciation rate is determined based on useful life and residual value of the asset.