Fixed assets accounting
Fixed assets are assets and values that are needed for the production, operation of the company. Over time, they transfer their value to products. This happens through depreciation. The main document that governs the accounting of the value of fixed assets is the provision “Accounting for fixed assets” (PBU 6/01) dated March 30, 2001.
To define assets as fixed, accountants need to observe several conditions:
• objects should be intended for the production, fulfillment by the company of its main tasks, for management or payment of lease;
• objects must serve the company for a long time, at least a year;
• the organization will not resell objects;
• the object will bring the company profit, financial income or other form of income.
The documentation of fixed assets’ cost in accounting is different from the tax one. In case of accounting, a company can set a limit on its own. However, in tax accounting, the limit is set at 100 000 rubles, and the company is not entitled to change it at its discretion, as is allowed in the case of accounting entries.
Methods of fixed assets’ receipt
The receipt of fix assets occurs in various ways: purchase, manufacture or construction by third-party specialists or by the organization itself. Also, founders can contribute fixed assets to the authorized capital. They can be transferred to company for free or by contract. Fixed assets can also be identified in the inventory process.
To document fixed assets, an accountant can use standardized forms of documents or develop their own forms of primary accounting. Objects of fixed assets are accepted at their original price. At the same time, it includes not only the value of the object, but also a whole list of expenses, without which it is impossible to use the asset in practice. It can be:
• delivery and transportation;
• custom and state fees if applicable.
Objects are subject to depreciation therefore they are assigned to a specific depreciation group. To reflect this procedure in accounting, account 02 is used. Depreciation can be calculated in several ways, including reducing the balance and writing off in proportion to the volume of production. Please note that tax accounting provides only two ways, it is not identical to the accounting system.
Accountants should carry out depreciation of the fixed assets monthly, without interruption. Although rare exceptions to this rule are still provided. If the properties of values do not change over time, such values are not subject to depreciation. For example, it may be land, cultural property.
The cost of fixed assets in accounting decreases with the operation taking into account depreciation. To determine the real price of the fixed assets, revaluation shall be made. It is relevant for companies in which fixed assets constitute a significant part of assets.
When revaluation is required:
• Accounting the actual cost of production.
• If it is necessary to attract investment in a business.
• Restructuring production.
• Increase in the organization’s management capital.
• Placement of assets as collateral.
• Sale of assets.
How does the revaluation of fixed assets value in accounting happen?
If after revaluation, the price of fixed assets has increased, the carrying value of the property also increases along with the amount of depreciation. It is also possible that after revaluation the price of operating systems increases, which were previously reduced. Then the appreciation sum is charged to the financial result and reflected in other income.
If, after revaluation, the value of the property has decreased, the amount of the markdown should be reflected in other expenses. It is possible that the value of objects previously appreciated has again declined. In this situation, after the markdown procedure, additional capital is reduced. The excess of the markdown over the revaluation amount is considered a financial result, so it should be reflected in the costs.
Accounting for the value of fixed assets upon sale
The disposal of the fixed assets is carried out in different ways, most often through the sale. It requires paperwork on the transfer of the object. This is usually an act or an invoice, but the contract may include other documents. At the date of sale, the company should record revenue through “Other income”. The residual value of the realized fixed assets is attributed to other expenses of the company.
Accounting entries for this operation are reflected in accordance with the Chart of Accounts and in the manner regulated by PBU 6/01 and the Methodological Recommendations for accounting of fixed assets at the time of recognition of sales income, and then write off the cost and depreciation and include them in expenses.
It happens that a company sells unfinished fixed assets’ facilities. They are attributed to other income and reflected on the credit of account 91. In this case, the procedure is different from a regular sale since it requires the use of account 08. There is no depreciation.
Fixed assets liquidation procedure and its reflection in accounting
Since the company usually gets rid of objects that are no longer suitable for use, this procedure is a decommissioning of these objects from the register for further destruction or dismantling. It turns out that after the liquidation, the company cannot count on income, and only expenses should be reflected in accounting.
The costs are shown in the debit of account 91. These include the residual value of the property that is being liquidated, as well as the cost of the work. At the same time, dismantling can be performed by company employees or third parties. These expenses also include VAT, which the company had to recover in connection with the liquidation of the fixed assets.
If during the dismantling the organization receives new inventories, they are posted to the debit of account 10 “Materials”. Usually it means spare parts that can be obtained during the dismantling process.
In 2020, it is very important to correctly carry out the procedure for accepting fixed assets for accounting, since the size of the property tax depends on this.
VALEN provides legal and accounting support for large and small businesses. Qualified specialists will advise you on any issues related to accounting of fixed assets. They will also take care of the paperwork and interaction with government bodies. For consultation or ordering services, leave a request on our website or dial the number indicated on the page!