Presentation and Disclosure of Assets in Balance Sheet

We have studied the presentation and disclosure requirements of the asset side of the balance sheet according to Companies Ordinance 1984 and International Accounting Standards. Following IAS affect the recognition, presentation and disclosure of fixed assets in financial statements

  • IAS 01 – Presentation of Financial Statements
  • IAS 16 – Property Plant and Equipment
  • IAS 23 – Borrowing Costs
  • IAS 36 – Impairment of Assets (not included in syllabus)
  • IAS 38 – Intangible Assets

Fixed Assets (Example)
Following information about the fixed assets of a company is available.
Other Assets purchased during the year included:

  • Plant and Machinery Rs. 1,070,000
  • Office Equipment Rs. 55,000
  • Leased Vehicles Rs. 580,000

Assets disposed off during the year included a company owned vehicle costing Rs. 1,000,000 and having accumulated depreciation of Rs. 488,000.
The car was sold to an employee of the company under terms of employment at book value.
The company got its land and building revalued in the last year that resulted in a revaluation surplus of:

  • Land Rs. 1,500,000
  • Building Rs. 1,000,000

This surplus is included in the balance of cost as on July 01.
Balance of revaluation surplus on July 01 was Land Rs. 1,500,000, Building Rs. 950,000
The revaluation resulted in an increased charged of depreciation charge of Rs. 47,500.
During the year lease term of a machine costing Rs. 6 million and having accumulated depreciation of Rs. 2,928,000 on July 01 was completed and the machine was transferred to the company owned assets.
The company charges depreciation on written down value of the assets at following rates:

  • Building on Freehold Land 05%
  • Plant and Machinery 10%
  • Tools and Equipment 20%
  • Furniture and Fixture 20%
  • Office Equipment 20%
  • Vehicles 20%

The company charges full year’s depreciation in the year of purchase and no depreciation in the year, in which the asset is disposed off.
Land, Building, Machinery and Tools are all utilized in production. Half of Furniture Fixture, Office Equipment and Vehicles are used for Administration and balance for marketing and sales.
Fixed Assets (Solution)
Now let’s see how the disclosure of this information will be given in the financial statements. Three different headings (line items) in the balance sheet will be shown, i.e.

  • Property Plant and Equipment
  • Capital work in Progress
  • Surplus on Revaluation

Details of the above three items will be given in the notes to the accounts.
In addition a policy note, giving the details of policies adopted will also be given
Property Plant and Equipment:
• Fixed capital expenditure and depreciation Operating fixed assets except freehold land are stated at cost less accumulated depreciation. Freehold land has been revalued by an independent valuer and is stated at revalued amount. Cost in relation to certain operating assets comprises historical cost, exchange differences and cost of borrowing during construction period in respect of loans taken for specific projects. Depreciation on all operating fixed assets is charged to profit and loss account on the diminishing balance method so as to write off the written down value of an assets over its estimated useful life. Full year’s depreciation is charged on additions during the year and no depreciation is charged for assets disposed off during the year.
Maintenance and repairs are charged to income as when incurred. Major renewals and improvements are capitalized and the assets so replaced, if any, are retired. Gains and losses on disposal of fixed assets are taken to the profit and loss account.
• Capital work-in-progress
Capital work-in-progress is stated at cost.
Assets acquired under a finance lease are depreciated over the useful life of the asset on diminishing balance method. Depreciation of leased assets is charged to profit and loss account.

Fixed Asset schedule (Explanation)

• The fixed asset schedule has ten columns in which quantity of columns may be increased or decreased according to the need of the organization.

  • First column – shows the category of assets and if the company has leased assets then assets subject to freehold and assets subject to leasehold are separately distinguished.
  • Second column – shows the cost of assets brought forward (cost at the start of the financial year).
  • Third column – shows the addition and disposals of assets during the year respectively.
  • Fourth column – shows the accumulated cost of assets (opening cost brought forward plus addition less disposal during the year and also added by the amount of assets transferred from the heading “assets subject to lease hold” to “free hold assets”
  • Columns second to four are related to the cost of the assets.
  • Fifth column – shows the rate of depreciation applied to assets categories.
  • Just like columns second to column four, depreciation on assets is shown in columns sixth to column ninth.
  • Sixth column – shows the accumulated depreciation on the assets brought forward (opening balance of accumulated deprecation).
  • Seventh column – shows the adjustment of depreciation which was caused due to movement in assets (Disposals / Transfers).
  • Eighth column – shows the depreciation for the year, which is calculated by deducting the accumulated depreciation and its adjustments from accumulated cost after additions and disposals and multiplying this with the depreciation rate.
  • Ninth column – shows the accumulated depreciation at the end of the year (inclusive of current year depreciation).
  • Tenth column – shows the Written down value of assets which is calculated after deducting the year end accumulated depreciation from year end accumulated cost. This is the amount which is shown in Balance Sheet.
  • At the bottom of schedule allocation of depreciation should be made between cost of sales, administrative and general and selling and marketing.

Revaluation of Assets:
Revaluation of Land and Building was carried out in the year —-, resulting in a surplus of Rs. 1,500,000 and Rs. 1,000,000 respectively. The revaluation was carried out by independent valuers on the basis of market value in case of land and discounted current replacement cost in case of building. Had there been no revaluation the carrying value of land and building would have been Rs. 21,588,000 and Rs. 21,503,000 respectively.
Disposal of Operating Fixed Assets
Accumulated Written Sale Profit
Disposal of Operating fixed asset schedule has eight columns

  • First column – Shows the particulars of the asset disposed off during the year.
  • Second Column – Shows the cost of the asset at which we purchase that particular asset.
  • Third Column – Shows the accumulated depreciation of the particular asset which was charged during the useful life of that asset.
  • Fourth Column – Shows the written down value of the asset.
  • Fifth Column – Shows the amount of sale proceeds.
  • Sixth Column – Shows the Profit or (Loss), after deducting the sale proceeds from the written down value of the asset.
  • Seventh Column – Shows the mode of disposal, either the asset was sold outside the organization or given to an employee in any company policy.
  • Eights Column – Shows the name and particulars of buyer.
  • In Surplus on revaluation of Fixed Assets calculation, the surplus on the revaluation of land was shown separately and additional depreciation due to revaluation increase in the value of the building was charged to revaluation on building account.
  • The reason why we don’t less any amount from the revaluation surplus on land is that, we don’t charge depreciation on land.

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