INTRODUCTION

2. This Statement does not deal with specialised aspects of accounting for Fixed assets that arise under a comprehensive system reflection the effects of changing prices.

3. This Statement does not deal with accounting for:

(a) forest and similar regenerative natural resources;

(b) expenditures on mineral rights, the exploration for extraction of minerals, oil, natural gas and similar non-regenerative resources;

(c) expenditure on real estate development; and

(d) goodwill

Expenditure on individual items of fixed assets used to develop or maintain the activities covered in (a), (b) or (c) above, separate from those activities, are to be accounted for in accordance with this Statement.

4. This Statement does not deal with the treatment of Government grants and makes only brief reference to the classification of leasehold rights as fixed assets, to the capitalisation of borrowing costs and to assets acquired in a business commendation. These subjects require more extensive consideration than can be given within this Statement.

DEFINITIONS

5. The following terms are used in this Statement with the meanings specified:Fixed assets are tangle assets that:

(a) are held by enterprise for use in the production or supply of goods ad service, or for administrative purposes and may include items held for the maintenance or repair of such assets;

(b) have acquired or constructed with the the intention of being used on a continuing basis;

 (c) are not intended to sale in the ordinary course of business; and

(d) are not invested properties as defined in this Statement

Leasehold rights over assets which meet the criteria of (a), (b) and (c) above, may also be treated as field assets in certain circumstances.

fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer ad a knowledgeable, willing seller in an arm’s length transaction.

Recoverable amount is that part of the net carrying amount of an asset that the enterprise can recover from the future use of that asset, including its net realisable value of disposal.

Investment property is an interest in land and or/buildings:

(a) In respect of which construction work and development have been completed;

(b is held not for consumption in the business operations or let to and occupied by another group company;

(c) the disposal of which would not materially affect any manufacturing or trading operations of the enterprise; and

(d) is held for its investments potential,income from rent being negotiated at arm’s length.

Depreciation is the depreciable amount of an asset over its estimated useful life.Depreciation for the accounting period is charged to income either directly or indirectly.

Depreciable assets are assets which:

(a) are expected to be used during more than one accounting period, and

(b) have limited useful life and

(c) are held by an enterprise for use in the productions or supply of goods or services if for administrative purposes and

(d) are not investment properties as defined herein. Useful life is either:

(a) the period over which a depreciable asset is expected to be issued by the enterprise; or

(b) the number of production or similar units expected to be obtained from the asset by the enterprise.

Depreciable amount of a asset is its recoverable amount.

EXPLANATION

Fixed Assets:

6. Fixed assets often comprise a major portion of the total assets of an enterprise, and therefore are significant in the presentation of financial position. Furthermore, the determination of whether an expenditure represents an asset or an expense can have a significant effect on an enterprise’s results of operations.

Identification of Fixed Assets

7. The definition in paragraph 5 gives criteria for determining whether items are to be classified as fixed assets. Judgement is require in applying the criteria to specific circumstances or specific types of enterprises. It may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and to apply the criteria tot he aggregate value. Alternatively, an enterprise may decide to expense an item which could otherwise have been included as assets because the amount of the expenditure is immaterial.

8. Major spare parts and stand-by equipment are normally capitalised. Other spare parts and servicing equipment are usually carried as inventory and charged to income as consumed. However, if the spare parts and servicing equipment can be used in connection with an item of fixed assets and their use is expected to be irregular, it may be appropriate to allocate the total cost on systematic basis to each accounting period over the useful life of the principal item.

9. In certain circumstances, the accounting for fixed assets may be improved if the total expenditure is allocated to its component parts, provided they are in practice separable,, and estimates are made of the useful lives of these components. For example, rather than treat an aircraft and its engines as one unit, it may be better to treat the engines as a separate unit if it is likely that their useful life is shorter that that of the aircraft as a whole.

Components of Cost

10. The cost of an item of fixed assets comprises its purchase price, including import duties and non-refundable purchase taxes, and any directly attributable costs of bring the assets to working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Examples of directly attributable costs are:

(a) site preparation;

(b) initial delivery and handling cost;

(c) installation cost, such as special foundation for plants;

(d) professional fees (architects, engineers, etc.)

Financing costs that ate attributable to a construction project and that are incurred up to the completion of construction are sometimes also included in the gross carrying amount of the assets t which they relate.

11. When payment for an item of fixed assets in working condition is deferred beyond normal credit terms, it ,may be appropriate to capitalise the purchase at the cash price equivalent and to charge to the difference between this amount and the total payments as interest over the period of deferral.

12. Administration and other general overhead expenses are not a component of the cost of fixed assets unless they can be specifically related to the acquisition of the asset or bringing it to its working condition.

13. Start-up and related pre-production costs would not form part of the cost of fixed assets unless they are necessary to bring the asset to its working condition.

Self-constructed Fixed Assets

14. In arriving at the gross carrying amount of self-constructed fixed assets the same principles apply as those described in paragraph 10-1. Included in the gross carrying amount are costs of construction that relate directly to the specific asset and costs that ate attributable to the construction activity in general and can be allocated to the specific asset. Any internal profits are eliminated in arriving as such costs.

15. Cost inefficiencies in the production of self-constructed assets, whether due to temporarily idle capacity, industrial disputes or other causes, are normally not considered to be suitable for capitalisation.. It is usually appropriate to have regard to a comparison with the cost of equivalent purchased assets or, if an enterprise makes similar assets for sale in the normal course of business, the cost of producing the assets for sale.

Non-Monetary Consideration

16. When an item included in fixed assets is acquired in exchange for another asset, its cost is usually determined by reference to the fair value of the consideration given. It may be appropriate to consider also the fair value of the asset acquired if this is more clearly evident. An alternative accounting treatment the is sometimes used for an exchange of assets, particularly when the assets exchanged are similar, is to record he asset acquired at the net carrying amount of the asset given up. In each case, an adjustment is made for any balancing receipt or payment of cash or other consideration.

17. When an item included in fixed assets is acquired in exchange for shares or other securities in the enterprise. it is usually recorded at its fair value or the fair value of the securities issued, whichever is the more clearly evident.

Improvements and Repairs

18. Frequently it is difficult to determine whether subsequent expenditures related to fixed assets represent improvements that ought to be added to the gross carrying amount or repairs that ought to be charged to income. Only expenditure that increases the future benefits for existing assets beyond its previously assessed standard of performance is included in the gross carrying amount. Example of these future benefits include:

(a) an extension in the asset’s estimated useful life;

(b) an increase in capacity; or

(c) a substantial improvement in the quality of out-put or reduction in previously assessed operating costs.

Recovery of Carrying Amount

19. The gross carrying amount of depreciable fixed assets is normally recovered on a systematic basis over their useful lives. If the usefulness of an item or a group of items is permanently impaired, for example by damage of technological obsolescence the recoverable amount may become less than the net carrying amount. In these circumstance, the net carrying amount is reduced to the recoverable amount and the difference is charged to income immediately.

Amount Substituted for Historical Cost

20. Sometimes financial statements that are otherwise prepared on a historical cost basis include part or all of the fixed assets at a valuation in substitution for historical cost and depreciation is calculated accordingly. Such financial statements are to be distinguished from the financial statements prepared on a basis intended to reflect comprehensively the effects of changing prices.

21. A commonly accepted method of restating fixed assets is by appraisal, normally undertaken by professionally qualified valuers. Other methods sometimes used are indexation and reference to current prices.

22. Two methods exists for presenting revalued amounts of fixed assets in financial statements. Under one method, both the gross carrying amount and accumulated depreciation are restated in order to give a net carrying amount equal to the net revalued amount.

Under the another method, accumulated depreciation is eliminated and the net revalued amount is treated as the new gross carrying amount. The method used is disclosed. In any event and upward revaluation does not provide a basis for crediting to income and accumulated depreciation existing at the date of revaluation.

23. Different bases of valuation are sometimes used in the same financial statements to determine the carrying amount of the separate items within each of the categories of fixed assets or for the different categorises of fixed assets. In these cases, it is necessary to disclose the gross carrying amounts included on each basis.

24. Selective revaluation of assets can lead to unrepresentative amounts being reported in financial statements. Accordingly, when revaluation do not cover all the assets of given class, it is appropriate that the selection of asset to be revalued be made on a systematic basis. For example, an enterprise may revalue all its assets on a cyclical basis, or may revalue a whole class of assets within a unit or operating company.

25. It is not appropriate for the revaluation of a class of assets to result in the net carrying amount of that class being greater than the recoverable amount of the assets of that class.

26. An increase in net carrying amount arising on revaluation of fixed assets is normally credited directly to shareholders’ interests under the heading of revaluation surplus and is usually regarded as not available for distribution. A decrease in net carrying amount arising on revaluation of fixed assets is charged to income except that, tot he extent that such a decrease is considered to be related to a previous increase on revaluation that is included in revaluation surplus, it is sometimes charged against that earlier increase.. It is sometimes happens that an increase to be recorded is a reversal of a previous decrease arising on revaluation which has been charged to income, in which case the increase is credited to income to the extent that it offsets the previously recorded decrease.

27. Transfers may be made to retained earnings from the revaluation surplus of an annual amount equivalent to the additional depreciation charge arising from revaluation.

Retirements and Disposals

28 An item of fixed assets is eliminated from the financial statements on disposal or when no further benefit to the enterprise is expected from its use and disposal.

29. Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net carrying amount and net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the income statement.

30. In historical cost financial statements gains or losses arising on disposal are generally recognised in the income statement.

31. On disposal of a previously revalued item of fixed assets, the difference between net disposal proceeds and the net carrying amount is normally charged or credited to income. The amount standing is revaluation surplus following the retirement or disposal of an asset which related to that asset may be transferred to retained earnings.

Depreciation

32. Depreciable assets comprise a significance portion of the total assets of many enterprise. Depreciation can therefore have significant effect in determining and presenting the financial position and results of operations of those enterprises.

33. The views is sometimes expressed that if the value of an assets has increased over the amount at which it is carried in the financial statements, it is unnecessary to provide for depreciation should be charged in each accounting period on the basis of the depreciable amount irrespective of an increase in the value of the assets.

34. Paragraph 32 and 33 do not apply to investment properties as defined in this statement.

Useful Life

35. Estimation of the useful life of a depreciable assets or a group of similar depreciable assets is a matter of judgement ordinarily based on experienced with similar types of assets. For an assets using new technology or used in the production of a new product in the provision of a new service with which there is a little experience, estimation of the useful life is more difficult but is nevertheless required.

36. The useful life of a depreciable asset for an enterprise may be shorter than its physical life. In addition to physical were and tear, which depends on operational factors such as the number of shifts for which the assets is to be used and the repair and maintenance programme of the enterprise, other factors need to be taken into consideration. These include obsolescence arising from technological changes or improvements in production, obsolescence arising from change in the marked demand for the product or service output of the asset and legal limits such as the expiry dates of related leases.

Residual Value

37. The residual value of an asset is often insignificant and can be ignored in the calculation of the depreciable amount. If the residual value is likely to be significant it is estimated at the date of acquisition, or the date of any subsequent revaluation of the asset, on the basis of the realisable value prevailing at the date for similar assets which have reached the end of their useful lives and have operated under conditions similar to those in which the asset will be used.The gross residual value in all cases is reduced by the expected costs of disposal at the end of the useful life of the asset.

Depreciation methods

38. Depreciable amounts are allocated to each accounting period during the useful life of the assets by a variety of systematic methods. Whichever method of depreciation is selected its consistent use is necessary, irrespective of the level of profitability of the enterprise and of taxation consideration, in order to provide comparability of the results of operations of the enterprise from period to period.

Land and Buildings

39. Land normally has an indefinite life and is not usually regarded as a depreciable asset. However, land which does have a limited useful life for the enterprise is treated as a depreciable asset.

40. Building are depreciable asset because they fall within the definition in paragraph 5.

41. Some enterprises have not treated buildings as depreciable assets for the reason that the aggregate value of the buildings and the land which it stands does not decline. As land and building are separate assets, recognition for accounting purposes of any increased value of the land is a different issue from the determination of the depreciable amount of the buildings.

Investment properties

42. The current value of investment properties and any charges in their current values are of primary importance for the proper appreciation of the financial position of an enterprise.

43. Investment properties may be held by a enterprise:

(a) which holds investments as part of its business such as investment trust or a property investment company

(b) whose main business activity is not the holding of investments

44. Where and investment property is held on a lease with a relatively short unexpired term, it is necessary to recognise the annual depreciation in the financial statements to avoid the situation whereby a short lease is amortised against the investment revaluation reserve whilst the rentals are taken to the profit and loss account.

45. Investment properties should be stated in the balance sheet at open market value. The valuation need not be carried out by an independent,

Fixed Assets

46. The items determined in accordance with the definition in paragraph 5 of this statement should be included under fixed assets in financial statements.

47. The gross carrying amount of an assets included in fixed assets should be either historical cost or a revaluation computed in accordance with the Standard. The method of accounting for assets included at historical cost is set out in paragraph 48 to 54; the method of accounting for revalued assets is set out in paragraphs 48-54; the method of accounting for revalued assets is set out in paragraph 55 to 60.

Assets Carried at Historical Cost

48. The cost of an asset included in fixed assets should comprise its purchase price and any direct attributable costs of bringing the assets to working condition for its intended use.

49. The cost o self-constructed property, plant and equipment included in fixed assets should comprise those costs that relate directly to the specific assets and those that are attributable to the construction activity in general and can be allocated to the specific assets. Cost inefficiencies should not be included as part of such cost.

50. When an item of fixed assets is acquired in exchange for another asset, the cost of the asset acquired should be recorded either at fair value or at the net carrying amount of the asset given up, adjusted for any balancing payment or receipt of cash or other consideration. For these purposes fair value may be determined by reference either to the asset given up or to the asset acquired whichever is the more clearly evident. Fixed assets acquired in exchange for shares or other securities in the enterprise should be recorded at its fair value of the securities issued, whichever is the more clearly evident.

51. Subsequent expenditures related to an item of fixed assets should be added to its carrying amount only if they increase the future benefits from the existing assets beyond its previously assessed standard of performance.

52. If a permanent impairment of an item or a group of items of fixed assets causes the recoverable amount to fall below the net carrying amount, the net carrying amount should be reduced to the recoverable amount and the difference charged to income immediately. Any item retired from active use and held for disposal should similarly treated and shown separately in the financial statements.

53. Fixed assets should be eliminated from the financial statements on disposal or when no further benefit is expected from its use and disposal.

54. Gains or losses arising from the retirement or disposal of fixed assets which are carried at cost should be recognised in the income statement.

Assets Carried at Revalued Amounts

55. When fixed assets are revalued in financial statements, an entire class of assets should be revalued, or the selection of assets for revaluation should be made on a systematic basis. This basis should be disclosed.

56. The revaluation is financial statements of a class of assets should not result in the net carrying amount of that class being greater that the recoverable amount of assets of that class.

57. When fixed assets are revalued upwards, any accumulated depreciation existing at the date of the revaluation should not be credited to income.

58. An increase in net carrying amount arising on revaluation of fixed assets should be credited directly to shareholders’ interests under the heading of revaluation surplus, expect that, to the extent that such increase is related to an not greater than a decrease arising on revaluation previously recorded as a charge to income, it may be credited to income. A decrease in net carrying amount arising on revaluation of fixed assets should be charged directly to income expect that, to the extent that such a decrease is related to an increase which has not subsequently reversed or utilised, it should be charged directly to hat account.

59. The provisions of paragraph 51, 52 and 53 are also applicable to fixed assets included in financial statements at a revaluation.

60. On disposal of a previously revalued item of fixed assets the difference between net disposal proceeds and the net carrying amount should be charged or credited to income.

Disclosure

61. In addition to the disclosures required by Statement of Standard Accounting Practice C - 10. Information to be Disclosed in Financial Statements the following disclosures should made:

(a) the bases used for determining the gross carrying amounts of fixed assets. When more than one basis has been used, the gross carrying amount for each category should be given; and

(b) in cases where fixed assets are stated at revalued amounts, the method adopted to compute these amounts should be disclosed, including the policy in regard to the frequency of revaluations. The nature of any indices used, the yea of any appraisal made, and whether an external valuer was involved should also be disclosed.

Investment Properties

62. Investment properties should be shown separately on the balance sheet a their open market value.

63. The names or qualifications of the persons making the valuation should be disclosed together with the bases used for such valuation. If the valuation is carried out by an employee or officer of the enterprise or group which own the property. this fact should be disclosed.

64. The changes in the value of investment properties should not be credited or charged to income but should be disclosed.

65. The provisions of paragraph 64 are not applicable to the financial statements of pension funds and the long term business of insurance companies where changes in value are dealt with in the relevant fund account.

66. Paragraph 62, 63 and 64 do not apply to investment properties owned by charities.

Depreciation

67. The depreciation amount of a depreciable asset should be allocated on a systematic basis to each accounting period during the useful life of the asset.

68. Investment properties should not be subj~ct to periodic changes for depreciation method selected should be applied consistently from period to period unless altered circumstances justify a change. In an accounting

69. The depreciation method selected should not be applied consistently from period to period unless altered circumstances justify a change. In an accounting period in which the method is changed, the effect should be qualified and disclosed and the reason for the change should be stated.

70. The useful life of a depreciable asset should be estimated after considering the following factors:

(a) expected physical wear and tear

(b) obsolescence

(c) legal or other limits on the use of the assets.

71. The useful lives of major depreciable assets or classes of depreciable assets should be reviewed periodically and depreciation rates adjusted for the current and future periods if exceptions are significantly different from the previous estimates. The effect of the change should be disclosed in the accounting period in which the change takes place.

73. The following should be disclosed for each major class depreciable asset:

(a) The depreciation methods used

(b) the useful lives or the depreciation rates used

(c) total deprecation allocated for the period

(d) the gross amount of depreciable assets and the related accumulated deprecation.

Effective Date

74. The Statement of Standard Accounting Practice become operative for financial statements covering periods beginning on or after 1st January 1986.