Fixed assets - a term used in accounting. it tangible assets, held by the company with the aim of using them in the manufacture or supply of various goods and services, the provision of leases or for other functions.
Depreciation of fixed assets is a process consisting in transferring the cost of funds to products that are produced (services, work).
What is it for? There are several opinions about the economic meaning of depreciation. Many experts believe that with the help of the depreciation mechanism, cash flows are created, which in the future will be directed to the production of fixed assets. Some experts consider depreciation as one of the ways to distribute large-scale expenses by periods according to accrual principles.
For example, when a company is operating, it provides production, manufactures products and sells them - due to this, the cost is formed, to which the value of the expected profit is added, as a result, the price is formed.
Costs of fixed assets are included in the cost of manufactured products on an even basis. If you write off all expenses for prime cost at a time, then the prices of products will increase many times and become uncompetitive.
The depreciation amount is determined separately for the facilities on a monthly basis. The annual amount of depreciation is determined by the following methods:
- linear method - based on the initial or restored value of fixed assets, as well as taking into account the useful life of the object;
- reduced balance - taking into account the residual value of the object at the start of the reporting year and the depreciation rate, which is calculated based on the useful life of the object;
- write-off of the value for the total amount of years of useful life.
Classification of fixed assets
An asset for accounting is accepted as fixed assets upon fulfillment of such conditions at a time:
- The object is intended for use in the manufacture of products, in the provision of services or the performance of work, for the needs of management and organization or the provision of the company for temporary possession and use for a fee.
- The object is used for a long period (more than a year).
- The company does not imply subsequent resale of the property.
- The object may bring benefits to the company in the future.
Fixed assets of an enterprise in accounting are classified as follows:
- facilities;
- building;
- cars and equipment;
- dwellings;
- regulating and measuring devices and instruments;
- means of transport;
- instruments;
- computer office equipment;
- working, breeding and productive cattle;
- household and industrial equipment;
- perennial plantings;
- other types of fixed assets.
For tax and accounting purposes, the classifier of fixed assets included in depreciable groups is used.
The straight-line method of depreciation calculation:
Depreciation is accrued monthly, starting from the next month after the one in which the object was commissioned, during useful life object.
Depreciation is suspended for periods when the facility is decommissioned - this may be modernization, reconstruction, completion, conservation, retrofitting, or a number of other reasons. In such cases, documents confirming this fact are necessary.
Depreciation ends only when the residual value of the asset equals its residual value.
Depreciation is not charged on:
- objects whose consumer properties do not change over time (nature management objects, land plots, objects assigned to museum collections and objects);
- objects of road facilities and external improvement;
- housing facilities used for profit;
- livestock;
- objects used to implement legislation on mobilization;
- perennial plantations that have not reached the operational age.
Revaluation of fixed assets
Clarification of the cost of funds in order to bring their current physical value to its real level in the market is revaluation of fixed assets.
Inflationary processes dictated its necessity. Revaluation items include structures, buildings, vehicles, machinery and equipment, tools. The most acceptable is revaluation by indexation or direct allocation at documented market prices.
When carrying out the work, the full replacement cost of the funds is determined (the cost of similar new facilities at market prices and tariffs on the date of revaluation of the funds, taking into account the costs of construction, acquisition, transportation, customs payments, installation of facilities).
They reassess in most cases to increase the size of their assets (increasing the value of fixed assets) - this helps to improve profitability, business activity, and turnover ratios. Banks also often give loans, given the size of the net assets of a company, enterprise or organization.
By increasing the value of fixed assets based on the results of revaluation for large profitable enterprises, it is possible to significantly reduce the size of the taxable income tax base by increasing depreciation deductions included in the cost. In this case, tax savings can greatly exceed the expenses incurred in paying property tax.
If an enterprise or organization is unprofitable, then a partial gradual revaluation of property is advisable to reduce the carrying amount of certain objects. In this case, the revaluation of exclusively obsolete moral objects results in real savings in property tax.
Revaluation is carried out voluntarily for the main property owned by the company. Reevaluation is carried out once a year (not more often).
Inventory of fixed assets
An inventory must be carried out before the preparation and preparation of annual reports.
Before starting the inventory check is carried out:
- inventory books, inventory cards, inventories, registers;
- technical documentation, technical passports;
- documents for fixed assets accepted or leased by the enterprise for rent and storage.
An inventory of fixed assets is carried out by the commission by inspecting the facilities. Entered in the inventory: full name, purpose, inventory numbers and technical, operational indicators.
If identifying objects that are not registered, or those for which the registers are missing data (or are incorrect), the commission includes real information and indicators for these objects in the inventory.
The results of the inventory reflect the accounting and reporting of the month when the inventory was completed. The annual inventory is reflected in the annual accounting.
Thus, fixed assets reflect the assets of the enterprise, which are necessary for carrying out economic activities.
