Professional Documents
Culture Documents
INTRODUCTION
1
1.2 Background of the study
The entire costs is recorded as an asset at the time of purchase The cost
of the asset allocated to Asset useful life.
2
1.3. Statement of the problem
3
1.4 Objectives of the study
The general objective of this study would be to assess fixed asset
valuation method and allocation of deprecation expense over the life of
fixed asset of the farm.
1.4.2. Specific Objective
To identify the methods of depreciation applied by the organization.
To assess the valuation of fixed assets.
To assess how fixed assets are valued and recorded on the
financial statement of farm.
To evaluate the valuation of fixed assets and methods of
deprecation in accordance with GAAP.
To assess how fixed assets would reported.
1.5. Significance of the Study
The study would examined fixed asset valuation and way of reporting
and it would have the following significance:-
It would guide and reflect how the farm valued fixed assets.
The researcher have be enable to relate the theoretical knowledge
regarding fixed asset valuation, Deprecation allocation method and
way of reporting that he has with the real existing practice.
The study have be used as a model for other comming new
generation in the study area.
It would help to arrange the organization financial system in
accordance with GAAP rules and procedures.
Most of all, from the result of the study the concerned parties
would able to solve the existing problem and strengthen their good
working habit.
4
1.6 Scope of the study
The study was conducted on LCPE. Throughout the analysis the focus of
the study was only towards fixed asset valuation method and way of
reporting. since the scope of fixed asset is very wide, and covering all
aspects of the problem cannot be possible to the researcher as per a
given time and other constraints.
To keep rule of feasible and realistic of the study, concerning on specific
parts from the issue is advisable. Thus, area that is covered on this
study was conducted on main office of the organization. And by using
five accounting years documents.
1.7 Limitation of the study
This research has encountered the following problem
1. The study was conducted in a short period of time. Thus, forced
the researcher to collect data not in very detail.
2. Dalliance to responses for interview and questioners by
respondents, forced the researcher to take information more from
secondary supporting document.
1.8 Organization of the paper
This study organized with five chapters. The first chapter which is an
introduction section of the study included background of the
organization, background of the study, statement of the problem,
objective of the study, significance of the study, scope of the study and
limitation of the study. The second chapter dealt with the related
literatures review. The third chapter dealt with research design and
methodology, the forth chapter dealt with data analysis and presentation
of the finding. Finally, chapter five dealt about conclusion and give
recommendations.
5
CHAPTER TWO
LITERATURE REVIEW
Fixed assets:- are tangible resources that are used in the operations of
the business and are not intended for sale to customers. They are also
called property, plant, and equipment; or plant Assets. These assets are
generally long term and are expected to provide services to the company
for a number of years. Except for land, plant assets decline in service
potential over their useful lives (Weygant etal, 1999).
Fixed asset are long-term or relatively permanent tangible assets that are
used in the normal business operations. They are owned by the business
and are not held for sale in normal operations. These assets may also be
described in more specific terms, such as equipment, furniture, tools,
machinery, building, and land. There is no standard rule as to the
minimum length of life necessary for an asset to be classified as a plant
asset such assets must be capable of providing repeated use or benefit,
and are normally expected to last more than a year. How ever, an asset
need not actually be used on an ongoing basis or even often. For example
items of stand by equipment held for use in the event of a break down of
regular equipment or for use only during peak periods of activity are
included in plant asset. Also long term assets acquired for resale in the
normal course of business are not classified as plant assets, regard less
of their permanent nature or the length of time they are held (Fess, etal
1996).
6
Classification of fixed assets
7
Depreciation of Fixed assets
Since plant assets are purchased for use, you may think of a plant asset
as a quantity of usefulness that will contribute to the operations of the
business throughout the service life of the asset. However, the life of any
plant asset (other than land) is limited, this quantity of usefulness
expires as the asset is used. This expiration of plant assets quantity of
usefulness is generally described as depreciation (Larson, 1990).
8
physical life is not exhausted. obsolescence is a common
occurrence when the asset is rendered obsolete by the
introduction of new technology. In adequacy refers to the
situation in which an asset is no longer suitable for the size of
the companies operation.
III. Residual Value:- The residual or salvage value is the net
amount that can disposition of an asset at the end of its service
life. It is the difference between the expected value of the asset
at the end of its service life and the cost of disposal such as
selling of the asset (Mosich, 1998).
9
method produces a constant depreciation each year. It can be calculated
As follows (Kiesso, 1986).
Totaling the annual depreciation of each asset and comparing it with the
total cost of the asset results the group depreciation rate.
That is,
10
Thus deprecation of each period is calculated by multiplying the gross
depreciation rate with the balanced is the asset account.
11
CHAPTER THREE
This study would focus on the fixed asset valuation and way of reporting
in Limmu coffe plantation development enterprise. In order to attain the
proposed objectives, the researcher would use both primary and
secondary data. The source of primary data would obtained from
respondents through questioners containg both closed ended and open
ended. Where as Secondary data would obtained from financial
statements and various document of the farm.
To collect the necessary data the researcher has been used both primary
and secondary data. To collect primary data questionnaires were used,
while secondary data was collected from different Accounting records and
documents.
The sampling size of the study was limited to 15% of total population of
180 those engaged in Limmu coffee farm like different personnel, logistic
and supply, and finance staff.
12
The strata and stratum are presented as following.
Finance staff 25 15
Manager of farm 1 1
There are several major reason why the researcher prefer stratified
sampling over other techniques. First, it assure that the researcher
would able to represent not only the over all households but also key
subgroups of households second, stratified random sampling generally
have more stastical precisions than simple random sampling.
13
CHAPTER FOUR
Presentation and analysis of data
The purpose of this study is to assess fixed asset management on the
performance of the business with the aim of indentifying and analyzing
factors that influence a proper management of fixed asset valuation and
depreciation allocation with its consequences taking Limmu coffee farm
as a sample study units.
The necessary data for attaining the stated objective were collected from
both primary and secondary data source. The sampled employees of the
farm which are 27 in number were asked about fixed Assets are
discussed below.
23-35 15 55.56
36-48 11 40.74
>48 1 3.7
Certificate 3 11.11
12 5 18.52
complete
14
55.56% of the respondents lies the age between 23-35, 40.74% of
respondents lies between 36-48 age and 3.7% above 48 age. The
education background of respondents show 22.22% graduate of BA
Degree, 48.15% graduate of diploma, 11.11% of respondents have
certificate and 18.52% grade twelve completed. Based on the above
table the researcher concluded that there is a good education
background of the employee of the organization. Also age of the employee
show they are between the productive stage.
Table 2 Respondents experience in the organization based on their
response
Year of experience November of Percentage
respondents
2-10 13 48.15%
11-16 7 26%
17-25 5 18.52%
>25 2 7.33%
Total 27 100%
15
Table -3 Response of the respondents regarding the assumption of fixed
assets valuation in the organization.
Response Number Percentage
Yes 25 92.5%
No 2 7.4%
Total 27 100%
16
Table 4 acquisition cost of fixed asset whether additional cost included
on acquisition cost or not
Responses Number Percentage
Yes 23 85.19%
No 4 14.8.1%
Total 27 100%
17
Table 5 response of respondents regarding depreciation expense whether
it is included on income statement or not.
Responses Number Percentage
Yes 26 96.3%
No 1 3.7%
Total 27 100%
18
Tables Rates of deprecation
Plant Asset Rates %
Buildings 5
Varies store 5
Mills 12
As can be seen from the above table, straight line rates are applied on all
fixed assets of the organization. In computing deprecation consideration
has to be given to the quantity and the cost of each unit of service
obtained. Accordingly, for assets that offer the same amount of service at
equal amount of lastly, the straight line of method depreciation is
considered appropriate. Even it is to apply different methods of
depreciation determination for its appropriations in light of the pattern of
service obtained from the fixed asset. So based on the assess of the
organization various document the researcher concluded that the
straight line method of deprecation is used in the organization.
So the computation of fixed asset based on straight lire which is the
application of fixed percentage given by government for example a
machine or building incur cost of 200,000 and the organization apply 5%
19
rate to be deprecation expense for that period and it continually applied
up to the balance be come zero.
Others method - -
Total 27 100%
20
Table -7 Responses of the Respondents about whether the responsible
bodies revise depreciation rate when under state or over state of Assets
useful life.
Responses Number of respondent Percentage
Yes 3 11.11%
No 24 88.89%
Total 27 100%
Table_8 responses of the respondents whether there are fixed assets fully
depreciated or not
Responses Number Percentage
yes 21 77.7%
no 6 22.22%
Total 27 100%
As indicated on the above table 77.78% of the responded that there are
assets fully depreciated and 22.22% said there are asset which simply
put because of obsolescence due to they replaced by advanced
technology. From the results the researcher concluded that fixed asset
of the organization are fully depreciated
21
Table 9 Responses whether fixed assets are well maintained or not
Responses Number Percentage
Yes 25 92.6%
No 2 7.4%
Total 27 100%
22
CHAPTER FIVE
Summary of findings conclusion and recommendation
5.1 Summary of findings
In this section, major findings are high lighted correlating with objective
of the study. The research paper is conducted to assess the fixed asset
valuation methods in Limmu coffee farm. The method of data collection
used by the researcher in this study were both primary and secondary
Data. Primary data was mainly collected through spreading
questionnaire to the group of stratum. Secondary data was collected from
the organizations financial reports and manuals. Based on this the study
has come up with the following findings,
As shown in the result and discussion part the fixed assets of the
organization are building, various stores, tractors, bulldozers, trailers.
Machinery and farm equipments, furniture, house holds and office
equipments, trucks and other vehicles, workshops and garage tools, and
mill.
23
5.2 Conclusion
In this study the researcher tried to see how the fixed assets acquisition
and determination of estimating their use full life and residual value
activities are applied in different literatures.
24
5.3 Recommendation
As shown in the earlier section the government body estimate percentage
rate for fixed asset of the organization so it should relates with the status
of fixed assets current situation. So, at the time of estimating the rate the
responsible body should consider the current situation of fixed asset like
physical wear and tear of the fixed asset and the current situation of
similar fixed asset in use.
The fixed percentages which has been set by the higher body should be
set accompanying with organizations management at the site of
operation. Because of their accessibility to the fixed assets, the necessary
information can be included in estimation of the rates.
The organization should not apply single method of depreciation for all
fixed assets. So, the selection of depreciation method should be
applicable with the nature of services get from the fixed assets. The
organization should revise the periodic deprecation method and other
issue related to depreciation.
25
Reference
26
Appendix
JIMMA UNIVERSITY
DEPARTMENT OF ACCOUNTING
a. Age 0
b. Education:- Degree 0 Diploma 0 Grade 12 Complete 0
Certificate 0
2. What is your position in these organization?
__________________________________________________________________
3. How long you have been stayed at this position?
__________________________________________________________________
4. What are the fixed assets used when your organization produce
products ? Specify
__________________________________________________________________
_________________________________________________________________
5. Does your organization apply the concept of fixed asset valuation?
Yes 0 No 0
6. If Yes, what is the assumption (or concepts) on fixed asset
valuation in your organization? Specify
27
__________________________________________________________________
__________________________________________________________________
Yes 0 No 0
8. How do you match the costs of fixed assets with revenue over the
benefit period?
__________________________________________________________________
__________________________________________________________________
9. Is the amount of residual value of fixed assets estimated at the
date of purchase approximately equal to its scrap or salvage vale
as of the estimated date of disposal
Yes 0 No 0
10.If yes, how is estimated?
________________________________________________________________
11. If no, why?
_________________________________________________________________
12. who are the responsible bodies that estimate the residual value of the
fixed assets?
____________________________________________________________________
13. At the time of estimating the useful life of fixed assts, what factors
that the responsible bodies considers?
_________________________________________________________________
14. Does your organization include depreciation expense in profit and
loss statement?
Yes 0 No 0
15. How depreciation is computed on your fixed assets?
28
Production methods 0
Declining balance method 0
Sum of years digit methods 0
If only one type for all fixed asset specify it _________________
16. If the answer for question number 15 is only one type, is it applicable
for all fixed assets?
Yes 0 No 0
17. If Yes, why? _________________________________________________
________________________________________________________________
18. Are the responsible bodies revise depreciation rate of fixed assets
when under estimate or over estimate of assets useful life occurs?
Yes 0 No 0
19. If No, why? __________________________________________________
___________________________________________________________________
Yes 0 No 0
21. If Yes, what are they?
_____________________________________________________________
________________________________________________________________________
________________________________________________________________________
23. Are the fixed assets well maintained ?
Yes No
24. If yes, how do you manage this expenditure?
________________________________________________________________________
_______________________________________________________________________
29
30