A portion of fixed assets are reduced by usage are converted into
cash through charging depreciation. For correct measurement of income,
proper measurement of depreciation is essential, as depreciation constitutes a part of total cost of production. Assets are classified into two categories: Tangible// Intangible. Tangible assets are assets that one can touch, hold, or feel. Typically called fixed assets in accounting literature, tangible assets are the physical things that a business uses in the production of goods and services. They constitute the production facilities, buildings, euipment, and vehicles. These operational assets of a business include furniture, computers, and similar items not used up within a year. Intangible assets are primarily financing items: stoc!s, bonds, mortgages, etc. "uipment manufacturers have financial assets in finished goods or inventory held for sale, as well as plant and euipment that will be sold to other businesses. The inventory is a financial asset# when sold for use in a production line it becomes a fixed asset to the purchaser. EQUIPMENT: "uipment includes the machinery, computers, office euipment, and all other long$lived items necessary for the operation of the business. These items reuire more managerial control because of their portability and general usefulness for other than the purpose intended when acuired. They range in price from a minimum capitali%ation level to many millions of dollars for complex production machinery. &ecause of the wide variety of reuirements for different items of euipment, we shall discuss them in several categories, including: Tools &uilding systems 'heating, cooling, elevators( Irrigation euipment Furniture and office euipment )omputers *rinting presses Applicable to all enterprises for which accounting period commences on or after +$,$-..,. It is applicable to transactions in foreign currency and translating financial statements of foreign subsidiary/branches. /onetary items denominated in Foreign )urrency shall be reported using closing rates. 0on$monetary items carried in terms of historical cost in foreign currency shall be reported at the exchange rate on the date of the transaction. "xchange differences shall be recogni%ed as income/expenses in the period in which they arise except in case of fixed assets and differences on account of forward contracts Translation of foreign exchange transaction of revenue items except opening/closing inventories and depreciation shall be made by applying rate at the date of the transactions. For convenience purposes an average rate or weighted average rate may be used, provided it approximates the rate of exchange
1pening and closing inventories shall be translated at rates prevalent on opening and closing dates, respectively and depreciation amount shall be converted by applying the rate used for translation of the asset2 Translation gains and losses for branches/subsidiaries forming integral part of operations of the entity shall be accounted as stated in above. 3owever translation gains and losses for non$integral operations shall be directly credited to reserves. It may be mentioned that that the method of arriving translation gains or losses shall be different from that stated above# i.e., all assets and liabilities are converted at closing rates and revenue items are converted at average rates, where it approximates the rates at the date of transactions. "xchange differences arising on repayment of liabilities incurred for purchase of fixed assets shall be expensed through profit and loss account. 40ote, in case of a )ompany 'read as reuired by 5chedule 6I(, where the fixed asset is purchased from outside India, the related exchange gains and loss, if any, are reuired to be capitali%ed7. Also in case of a company, other exchange differences arising out of long$term monetary items can be initially deferred and later amorti%ed over the period up to /arch 8+, -.+- or the life of the related long$ term monetary asset whichever is lower with corresponding ad9ustments in balance sheet through :Foreign )urrency /onetary Item Translation ;ifference Account:. <ains or losses on accounting of forward contracts are recogni%ed through profit and loss account 'unless it relates to fixed assets as described in above for a )ompany(. 3owever, measurement of gains or losses on forward contract depends upon the intention for which it is ta!en. =here it is not for trading or speculative purposes the premium/discount is amorti%ed over the term of the contracts. =here these are held for either speculative or trading purposes, the gain or loss is arrived at each reporting date after comparing the FAI> 6A?@" of contract for its remaining term of maturity with the carrying amount at the reporting date.