term paper about fixed assets

Good Essays
The fixed asset register is an accounting method used by businesses to identify the major resources they hold. Lindsey Lester explains what it is and how it should be used
The reporting of fixed assets should comply with Financial Reporting Standard 15 (FRS 15). The aim of this reporting standard is to ensure that tangible fixed assets are accounted for on a consistent basis. It sets out the principles in making a decision as to whether a tangible fixed asset is stated at cost on a financial statement or at a revalued amount. It is acknowledged within the standard that in some cases no depreciation charge will be made on the grounds that it is immaterial.
What is a fixed asset?
The definition of a fixed asset was discussed in my last
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An example of this is:
A computer was purchased for £5,000 and the life of the computer is expected to be three years with a residual value of £800. The total amount to be depreciated will be £4,200 (£5,000-800). To determine the amount of depreciation per year, the following equation should be used: £4,200/3 = £1,400 pa.
The reducing balance method
This is the other commonly used method. It is usually used where the asset is required to be written off at a higher value in the asset’s infancy, usually when it has a very high usage. The amount of depreciation will reduce at a constant rate each year as the asset gets older. For instance – an asset was purchased for £3,250 (NBV) with a residual value of £702 at the end of three years. The rate of depreciation will be 40% annually: Book Value
Accumulated Depreciation
First year
3250 x 40% = 1300
Second year
1950 x 40% = 780
Third year
1170 x 40% = 468
You may also find that your accountants will refer to an asset that is being considered for impairment, and this too should be covered in the depreciation policy
Depreciation guidelines as to over how long an asset will depreciate will be laid down in your depreciation policy and should be followed to ensure consistency.
The purpose of the depreciation policy is to ensure that consistent principles are applied in respect of the measurement, valuation and depreciation of a tangible fixed asset. The Academies Accounts
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