Financial Accounting II

Lecture 14
 Areas Covered

• Presentation and Disclosure

of Assets in Balance Sheet
• We have studied the presentation and
disclosure requirements of the asset
side of the balance sheet according to
Companies Ordinance 1984 and
International Accounting Standards.
• Following IAS affect the recognition,
presentation and disclosure of fixed
assets in financial statements
 IAS 1 – Presentation of Financial
Statements
 IAS 16 – Property Plant and Equipment
 IAS 23 – Borrowing Costs
 IAS 36 – Impairment of Assets (not
included in syllabus)
 IAS 38 – Intangible Assets
 Fixed Assets
• Now we will take examples of actual data
and show you the relevant disclosures.

• Following information about the fixed

assets of a company is available.
Balances of Fixed Assets as On July 01

Description Rupees
000
Freehold Assets - Cost

Freehold Land 22,088

Building on Freehold Land 75,328
Plant and Machinery 588,050
Tools and Equipment 6,287
Furniture and Fixture 5,449
Office Equipment 15,850
Vehicles 28,062

Leasehold Assets - Cost

Plant and Machinery 40,569

Vehicles -
Freehold Assets - Accumulated Dep

Freehold Land -
Building on Freehold Land 52,495
Plant and Machinery 344,933
Tools and Equipment 5,613
Furniture and Fixture 4,680
Office Equipment 12,740
Vehicles 22,790

Leasehold Assets - Accumulated dep

Plant and Machinery 3,948

Vehicles -
 Fixed Assets
• Capital work in progress on July 01
amounting to Rs. 500,000, included an
under construction building. A further cost
of Rs. 200,000 was incurred during the
year after which the building was
capitalized.

• Other Assets purchased during the year

included:
 Plant and Machinery Rs. 1,070,000
 Office Equipment Rs. 55,000
 Leased Vehicles Rs. 580,000
 Fixed Assets
• Assets disposed off during the year
included a company owned vehicle
costing Rs. 1,000,000 and having
accumulated depreciation of Rs. 488,000.

• The car was sold to an employee of the

company under terms of employment at
book value.
 Fixed Assets
• The company got its land and building revalued
in the last year that resulted in a revaluation
surplus of:
 Land Rs. 1,500,000
 Building Rs. 1,000,000
• This surplus is included in the balance of cost
as on July 01.
• Balance of revaluation surplus on July 01 was
Land Rs. 1,500,000, Building Rs. 950,000
• The revaluation resulted in an increased
charged of depreciation charge of Rs. 47,500.
 Fixed Assets
• During the year lease term of a machine
costing Rs. 6 million and having
accumulated depreciation of Rs.
2,928,000 on July 01 was completed and
the machine was transferred to the
company owned assets.
 Fixed Assets
• The company charges depreciation
on written down value of the assets at
following rates
 Building on Freehold Land 5
 Plant and Machinery 10
 Tools and Equipment 20
 Furniture and Fixture 20
 Office Equipment 20
 Vehicles 20
 Fixed Assets
• The company charges full year’s
depreciation in the year of purchase
and no depreciation is in the year in
which the asset is disposed off.
• Land, Building, Machinery and Tools
are all utilized in production. Half of
Furniture Fixture, Office Equipment
and Vehicles are used for
Administration and balance for
marketing and sales.
 Fixed Assets
• Now lets see how the disclosure of this
information will be given in the financial
statements.
• Three different headings (line items) in the
balance sheet will be shown, i.e.
 Property Plant and Equipment
 Capital work in Progress
 Surplus on Revaluation
• Details of the above three items will be given in
the notes to the accounts.
• In addition a policy note, giving the details of
policies adopted will also be given
 Property Plant and Equipment
• Fixed capital expenditure and depreciation
Operating fixed assets except freehold land
are stated at cost less accumulated
depreciation. Freehold land has been
revalued by an independent valuer and is
stated at revalued amount. Cost in relation to
certain operating assets comprises historical
cost, exchange differences and cost of
borrowing during construction period in
respect of loans taken for specific projects.
Depreciation on all operating fixed assets
is charged to profit and loss account on
the diminishing balance method so as to
write off the written down value of an
assets over its estimated useful life. Full
year’s depreciation is charged on
additions during the year and no
depreciation is charged for assets
disposed off during the year.
 Maintenance and repairs are charged to
income as when incurred. Major
renewals and improvements are
capitalized and the assets so replaced, if
any, are retired. Gains and losses on
disposal of fixed assets are taken to the
profit and loss account.
• Capital work-in-progress
Capital work-in-progress is stated at
cost.
Assets acquired under a finance
lease are depreciated over the
useful life of the asset on
diminishing balance method.
Depreciation of leased assets is
charged to profit and loss account.
 Cost Acc Dep
S.# Particulars As On Addition / As On Dep % As On Addition / During the As On
01-Jul (Deletion) 30-Jun 01-Jul (Deletion) Year 30-Jun
( Rupees in thousands )
Assets Subject to Free Hold

1 Freehold Land 20,588 20,588 - - - - -

2 Building on Free Hold Land 74,328 700 75,028 5 52,495 - 1,127 53,525
3 Plant and Machinery 588,050 1,070 595,120 10 344,933 2,928 24,726 369,659
6,000
4 Tools and Equipment 6,287 6,287 20 5,613 - 135 5,748
5 Furniture and Fixture 5,449 5,449 20 4,680 - 154 4,834
6 Office Equipment 15,850 55 15,905 20 12,740 - 633 13,373
7 Vehicles 28,062 (1,000) 27,062 20 22,790 (488) 757 23,059

738,614 6,825 745,439 443,251 2,440 27,532 470,198

Assets Subject to Lease Hold

1 Plant and Machinery 40,569 (6,000) 34,569 10 3,948 (2,928) 2,769 6,717
2 Vehicles - 580 580 20 - 116 116

40,569 (5,420) 35,149 3,948 (2,928) 2,885 6,833

779,183 1,405 780,588 447,199 (488) 30,417 477,031

Depreciation charged for the year has been allocated as follows:

Cost of Sales 28,757

Administrative and General Expenses 830
Selling and Marketing Expenses 830
30,417
 Revaluation of Assets
3.1 Revaluation of Land and Building was
carried out in the year ----, resulting in a
surplus of Rs. 1,500,000 and Rs.1,000,000
respectively. The revaluation was carried out
by independent valuers on the basis of
market value in case of land and discounted
current replacement cost in case of building.

Had there been no revaluation the carrying

value of land and building would have been
Rs. 21,588,000 and Rs. 21,503,000
respectively.
3.2 Disposal of Operating Fixed Assets

Accumulated Written Sale Profit / Mode of Particulars

Particulars Cost Depreciation Down Value Proceeds ( Loss ) Disposal os Buyer
( Rupees in thousands )
Vehicles
Honda Civic LXS-834 1,000 488 512 512 - Employee Car Mr. M.A.Asif
Scheme

1,000 488 512 512 -

11. Surplus on Revaluation
Rupees
000
Surplus on Revaluation of Land 1,500

Surplus on Revaluation of Building 950

Less Transferred to Retained Earinings (47)
903

Closing Balance 2,403