Classification of assets

Tangible fixed assets

Tangible fixed assets (TFAs) are defined in
FRS 15 as:
Assets that have physical substance and are Held for
use in the production or supply of goods or services ,
for rental to others , or for administrative purposes on
a continuing basis in the reporting entity activities .
Classification of tangible fixed asset

in the UK the formats for financial reporting

contain three groups for TFAs :
 Land and buildings
 plant and machinery
 fixtures, fittings, tools and equipment
IAS 16 property, plant, and equipment
Recognition
Items of property, plant, and equipment should
be recognised as assets when it is probable
that:
 it is probable that the future economic
benefits associated with the asset will flow to
the entity .
 the cost of the asset can be measured
reliably .
 IAS 16 recognises that parts of some items of
property, plant, and equipment may require
replacement at regular intervals. The carrying
amount of an item of property, plant, and
equipment will include the cost of replacing the part
of such an item when that cost is incurred if the
recognition criteria (future benefits and
measurement reliability) are met. The carrying
amount of those parts that are replaced is
derecognised in accordance with the derecognition
provisions of IAS 16 .
 :Example
 an aircraft may require regular major inspections
for faults regardless of whether parts of the item
are replaced. When each major inspection is
performed, its cost is recognised in the carrying
amount of the item of property, plant, and
equipment as a replacement if the recognition
criteria are satisfied. If necessary, the estimated
cost of a future similar inspection may be used as
an indication of what the cost of the existing
inspection component was when the item was
acquired or constructed.
 Disclosure
For each class of property, plant, and
equipment, disclose :
 basis for measuring carrying amount .
 depreciation method(s) used .
 useful lives or depreciation rates .
 gross carrying amount and accumulated
depreciation and impairment losses .
 reconciliation of the carrying amount at the
beginning and the end of the period showing:
• additions
• disposals
• acquisitions through business combinations
• revaluation increases or decreases
• impairment losses
• reversals of impairment losses .
• depreciation .
• net foreign exchange differences on translation
• other movements .
 restrictions on title .
 expenditures to construct property, plant, and
equipment during the period .
 contractual commitments to acquire
property, plant, and equipment
 compensation from third parties for items of
property, plant, and equipment that were
impaired, lost or given up that is included in
profit or loss .
If property, plant, and equipment is stated at
revalued amounts, certain additional
disclosures are required:
 the effective date of the revaluation
 whether an independent valuer was
involved .
 the methods and significant assumptions
used in estimating fair values
 the extent to which fair values were determined
directly by reference to observable prices in an
active market or recent market transactions on
arm's length terms or were estimated using
other valuation techniques .
 for each revalued class of property, the carrying
amount that would have been recognised had
the assets been carried under the cost model
 the revaluation surplus, including changes
during the period and any restrictions on
the distribution of the balance to
shareholders .
Intangible assets

Intangible assets are defined as :

Non-financial fixed assets that do not have
a physical substance but are identifiable
and are controlled by the entity through
custody or legal rights .
IAS 38 Intangible assets

Under the new standard ias 38 ( applied

from 31 march 2004) an Intangible
asset will be initially recognized at cost
if the following three conditions are
met :
 IAS 38 Intangible assets

1. The asset meet the definition of an Intangible

asset- identified and controlled by the
business .
2. its probable that future economic benefits will
flow to the business .
3. the cost of the asset can be measured
reliably .
Intangible assets and initial carrying value

In determining the value at initial recognition

we need to consider three cases :
1. an intangible asset purchased separately
this asset should be capitalised at its cost .
2. an internally developed intangible fixes
asset may be captialised only if it has a
readily ascertainable market value
In this case the entity has the choice whether
to capitalised the asset or not .
3. Intangible fixed asset acquired as part of
purchase of a business .
Intangible asset should be capitalised
separately from goodwill, if its value can
measured reliably on initial recognition .
In this case the intangible asset should initially
recorded at its fear value .
Note:unless the asset has readly ascertainable
market value , the fear value should be
limited to an amount that doesnt create
negative goodwill arising on acquisition .