1. Fixed Assets Fixed assets are those assets: that have a long life,
Lecture 1
Fixed Assets
Fixed assets are those assets:
that have a long life,
are used in the business for future generation of income,
are not bought with the main purpose of resale.

2. Fixed assets are also called “Depreciable Assets”
Lecture 1
Fixed assets are also called “Depreciable Assets”

3. Lecture 1
Depreciation
Cost of the asset is charged to profit and loss account over its life.

4. Depreciation Depreciation can be defined as follows:
Lecture 1
Depreciation
Depreciation can be defined as follows:
“It is a systematic allocation of the cost of a depreciable asset to expense over its useful life”.

5. Lecture 1
Useful Life
Useful Life / Economic Life is the time period for machine is expected to operate efficiently.
It is the life for which a machine is estimated to provide more benefit than the cost to run it.

6. No depreciation is charged on land.
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No depreciation is charged on land.

7. It is called Amortization.
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In case of Leased / Lease Hold Land the amount paid for it is charged over the Life of Lease.
It is called Amortization.

8. Grouping of Fixed Assets
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Grouping of Fixed Assets
Major groups of Fixed Assets:
Land
Building
Plant and Machinery
Furniture and Fixtures
Office Equipment
Vehicles

9. Recording Purchase of a Fixed Asset
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Recording
Purchase of a Fixed Asset
Debit Asset Account (relevant classification)
Credit Cash / Bank or Payable Account

10. Recording Depreciation Two different accounts are used
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Recording
Depreciation
Two different accounts are used
Depreciation Expense Account
Accumulated Depreciation Account

11. Lecture 1
Accumulated Depreciation Account – over the years the periodic depreciation is accumulated in this account.

12. Book Value OR Written Down Value (WDV) Cost of the Asset Less
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Book Value OR Written Down Value (WDV)
Cost of the Asset
Less
Accumulated Depreciation

13. Recording Depreciation Debit Depreciation Expense Account
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Recording
Depreciation
Debit Depreciation Expense Account
Credit Accumulated Account

14. Depreciation for the year is charged to: i. Cost of Goods Sold
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Depreciation for the year is charged to:
i. Cost of Goods Sold
ii. Administrative Expenses
iii. Selling Expenses

15. Lecture 1
In balance sheet Fixed Assets are shown at Cost less Accumulated Depreciation i.e. Written Down Value (WDV)

16. Recording the Depreciation
Lecture 1
Recording the Depreciation
Journal Entry
Debit Depreciation Expense Account
Credit Accumulated Depreciation Account
Presentation
Profit and Loss Account
Revenue
- Cost of Sales
- Admin, Selling and Financial Expenses
Balance Sheet
Fixed Assets
- Accumulated Depreciation

17. Methods of Calculating Depreciation
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Methods of Calculating Depreciation
Straight Line Method
Reducing Balance or Written Down Value Method

18. Lecture 1
Residual Value
It is the estimated value of the asset at the end of it’s useful life.

19. Straight Line Method of Calculating Depreciation
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Straight Line Method of Calculating Depreciation
Depreciation = (Cost – Residual Value) / Life of The Asset

20. Example Straight Line Method
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Example Straight Line Method
Cost of the Asset = Rs. 100,000
Life of the Asset = 5 years
Annual Depreciation = 20 % of cost or Rs. 20,000

21. Written Down Value Method
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Written Down Value Method
Cost of the Asset = Rs. 100,000
Annual Depreciation = 20%
Year 1 Depreciation = 20 % of 100,000 = 20,000
Year 1 WDV = 100,000 – 20,000 = 80,000
Year 2 Depreciation = 20 % of 80,000 = 16,000
Year 2 WDV = 80,000 – 16,000 = 64,000