FIXED ASSETS

(PROPERTY, PLANT, AND

EQUIPMENT)
A. CHARACTERISTICS

1) They are acquired for use in operations and not for

resale
2) They are long term in nature and usually subject to
depreciation
3) They possess physical substance

Examples of fixed assets (property, plant and

equipment)
Land
Building structures (offices, factories,
warehouses)
Equipment ( machinery, furniture, tools, vehicles)
B. ACQUISITION OF PROPERTY,
PLANT, AND EQUIPMENT

Cost of property, plant and equipment includes all amount spent to

get it in place and ready for use

1) Cost of acquiring land

a) Purchase price f) Surveying fees
b) sale taxes g) delinquent real estate
c) permits from governmenth) Razing or removing
d) Brokers commissions unwanted buildings,
e) Title fees less any salvage
i) Grading and leveling
j) Paving a public street
bordering the land
2.) Cost of acquiring building
- Architecs fees
- Engineers fees
- Insurance costs incurred during construction
- Interest on manoey borrowed to finance
contruction
- Walkways to and pound the building
- Sales taxes
- Reapirs (purchase of existing building)
- Reconditioning
- Modifying for use
- Permits from government agencies
3) Cost of acquiring land improvements
- Trees and shrubs
- Fences
- Outdoor lighting
- Paved parking areas

4) Cost of acquiring land machinery and equipment

- Sales taxes
- Freight
- Installation
- Repairs (purchase of used equipment)
- Assembly
- Modifying for use
- Testing for use
- Permits from government agencies
RECORDING THE ACQUITITION

Transactions Journal
Purchase (ex: Machines) Machines xxx
Cash xxx
Installment (ex: Machines) Machines xxx
Cash xxx
Financing Loan xxx
Purchase annuity (lump sum) Machines xxx
Building xxx
Differed interest expense xxx
Cash xxx
Annuity payable xxx
Interest payable xxx
Self building asset Building xxx
Material expenses xxx
Direct labor expense xxx
Overhead expenses xxx
Interest expense xxx
Issuance Stocks Machines xxx
Capital Stock xxx
Additional Paid in Capital xxx
Exchange with others assets Machines A xxx
Accumulation depreciation- Machines B xxx
Machines B xxx
Cash xxx
Donation Machines xxx
Donation Capital xxx
Kas xxx
DEPRECIATION

Depreciation is periodic transfer of cost to expense

Factors that course a decline in the ability of fixed asst

- Physical depreciation
- Functional depreciation

Factor involved in Depreciation Proces

Cost of fixed assets
Usefull life
Residual Value (salvage value)
METHODS OF DEPRECIATION

1. Activity methods
2. Straight-line methods
3. Decreasing charge methods (accelerated)
a) Sum-of-the years-digits
b) Declining balance method
4. Special Depreciation Method
a) Group and composite methods
b) Hybrid or combination methods
DATE USED TO ILLUSTRATE DEPRECIATION METHODS

The following is fixed asset (machines) owned by Sine Furniture, Co:

Purchased date January, 1, 2008
Cost of machines Rp. 500.000.00
Estimated useful life 5 years
Estimated Residual Value Rp. 50.000.000
Estimated life in hours 30,000 hours
Hours use this year 4,000 hours
DEPRECIATION CALCULATIONS

1) Activity Method
(Cost less residual ) x Hours this year
Depreciation charge = ---------------------------------------------------
Total estimated hours

= (Rp. 500.000.000 Rp. 50.000) x 4,000

----------------------------------------------------
30,000
= Rp. 60.000.000
DEPRECIATION CALCULATIONS

2) Straight-Line Method

Cost less residual

Depreciation charge = ----------------------------
Estimated service life

= Rp. 500.000.000 Rp. 50.000

----------------------------------------
5
= Rp. 90.000.000
DEPRECIATION CALCULATIONS

3) Decreasing charge methods (accelerated)

a) Sum-of-the years-digits
Year Depreciation Remaining Deprecitaion Depreciation Book Value, end
Base Life in Fraction Expense of Year
Years

(1) (2) (3) (4) (5) (6)

1 Rp. 450.000.000 5 5/15 Rp. 150.000.000 Rp. 350.000.000

2 450.000.000 4 4/15 120.000.000 230.000.000

3 450.000.000 3 3/15 90.000.000 140.000.000

4 450.000.000 2 2/15 60.000.000 80.000.000

5 450.000.000 1 1/15 30.000.000 50.000.000 *

15 450.000.000
Continue
Notes:
(2) = Rp. 500.000.000 Rp. 50.000.000 = Rp. 450.000.000

(4) Formula to calculate denominator of fraction

(n+1) (5 + 1)
n ------- = 5 --------- = 15
2 2
(5) = (2) x (4)

* Book value 5th equivalent to residual value

DEPRECIATION CALCULATIONS

3) Decreasing charge methods (accelerated)

b) Declining balance method
Year Book Value of Rate Debit Balance Book Value, end
Asset First of on Depreciation Accumulated of Year
Year Declini Expense Depreciaton
ng
Balan
ce
(1) (2) (3) (4) (5) (6)
1 Rp. 500.000.000 40% Rp. 200.000.000 Rp. 200.000.000 Rp. 300.000.000

2 300.000.000 40% 120.000.000 320.000.000 180.000.000

3 180.000.000 40% 72.000.000 392.000.000 108.000.000

4 108.000.000 40% 43.200.000 435.200.000 64.800.000

5 64.800.000 40% 14.800.000** 450.000.000 50.000.000

DEPRECIATION CALCULATIONS

Continue ..
Notes:
(3) 2 x the straight line rate = 2 x 20% *
* Rp. 90.000.000/Rp.450.000.000 = 20%
(4) = (2) x (3)

**) Limited to Rp. 14.800.000 because book value should

not be less than salvage
4. Special Depreciation Method
(Group and composite methods)
This method is applied for group of fixed assets

Calculation procedures as follows

1. Computing the annual depreciation for each asset
based on straight line method
2. The composite depreciation rate calculate by the
total annual depreciation dividing with the sum of cost
all assets
3. Useful life of composite assets determined base on
sum of depreciation cost all assets by annual
depreciation
Asset Estimated Depreciation Estimate
Cost Annual Dep
No. residual value Based d life

110 375.000.000 5.300.000 369.700.000 4 92.425.000

111 729.000.000 3.900.000 725.100.000 6 181.275.000
112 483.000.000 2.400.000 480.600.000 9 120.150.000
113 927.500.000 3.750.000 923.750.000 5 230.937.500
Total 2.514.500.000 15.350.000 2.499.150.000 624.787.500

Composite rate (%) = 24,85%

 Plant Asset Record
Account No : 13211
General Ledger Account: Office Equipment
Item : Printer
Serial No : P.HP.102
From Whom Purchased : DeComp, Co
Estimated life : 10 years
Estimated Residual Value : Rp. 500.000
Depreciation per year : Rp. 240.000
--------------------------------------------------------------------------------------------------------------
Asset Accumulated Depreciation Book
Date Debit Credit Balance Debit Credit Balance Value
04/08/07 2.900.000 2.900.000 2.900.000
12/30/07 180.000 180.000 2.720.000
12/30/08 240.000 420.000 2.480.000
 Expenditures During Useful Life

A. Revenue expenditure
Cost that benefit only the current period or
costs incurred for normal maintenance and
repairs
It is debited to expense account
Example:
maintenance expense, repainting building,
small repairs, etc
B. Capital Expenditure
Costs of acquiring fixed asset, adding to fixed
asset, improving fixed asset, or extending a
fixed assets useful life
It debited to asset account or related to
accumulated depreciation account
Types of capital expenditure
1) additions
2) betterments
3) extraordinary repairs
Disposal of Fixed Assets
The entry to record the disposal of fixed asset removes the cost
of the asset and it accumulated depreciation from the account

Ex: Assume that an item of equipment is acquired at cost of Rp.

25.000.000 is fully depreciated at Dec,31, the end of the
preceding fiscal year. On Feb, 14 the equipment is discharged.

The entry to record it as follow:

Date Description Reff. Debit Credit

2008
Feb 14 Accumulated Depreciation 25.000.000
Equipment 25.000.000
 Ex: Assume that an item of equipment acquired at cost of Rp.
6.000.000, accumulated depreciated after adjusting entries is Rp.
4.750.000. At March, 24 removed from service.
The entry to record it as follow:

To record current depreciation Rp.6.000.000 x 3/12 = 150,000)

Date Description Reff. Debit Credit

2008
Mar 24 Accumulated Depreciation 150.000
Equipment (to write of equipment discarged) 150.000

Date Description Reff. Debit Credit

2008
Mar 24 Accumulated Depreciation 4.900.000
Loss on Disposal of Fixed Asset 1.100.000
Equipment (to write of equipment discarged) 6.000.000
Selling fixed assets
Example, assume a company has equipment as follows:
Cost of equipment Rp, 10,000.000
Useful life 10 years
Balance of accumulated depreciation at preceding Dec,31 Rp.7.000.000
It sold on Oct, 12
Depreciation method straight line

The entry to record it as follow:

Date Description Reff. Debit Credit

2008
Oct 12 Depreciation Expense 750.000
Accumulated Depreciation 750.000
(to record curent depreciation on equipment
10.000 x 3/4 x 10%)
A. Sold at book value for Rp. 2.250.000. No gain or loss
Date Description Reff. Debit Credit
2008
Oct 12 Cash 2.250.000
Accumulated Depreciation 1.150.000
Equipment 10.000.000

B. Sold below book value for Rp. 1.000.000. Loss Rp. 1.250.000

Date Description Reff. Debit Credit

2008
Oct 12 Cash 1.000.000
Accumulated Depreciation 7.750.000
Loss on disposal of fixed asset 1.250.000
Equipment 10.000.000
 C. Sold above book value for Rp. 1.000.000. LossRp.
2.800.000
Gain Rp. 550.000

Date Description Reff. Debit Credit

2008
Oct 12 Cash 2.800.000
Accumulated Depreciation 7.750.000
Equipment 10.000.000
Gain on disposal of fixed asset 550.000
Exchanging Similar Assets
It is old equipment traded in for new equipment
having similar use.

The cost recorded for the new asset can be

determined in either of two types ways:

1. Cost of new asset = List price of new asset

unrecognized gain or
2. Cost of new asset = cash given (or liability
assumed) + Book value of old asset
Continue

Illustration
Assume the folllowing exchange:
Book value old equipment Rp. 14.000.000
List price of new equipment Rp. 50.000.000
A trade in allowance of
the old equipment Rp. 15.000.000

Similar equipment acquired (new)

List price 5.000.000
Trade-in allowance on old equipment 1.100.000
Cash paid at June, 19
 Cost of new equipment as follow

Similar New equipment

List price ............... Rp. 5.000.000
Trade-in allowance of equipment..Rp. 1.100.000
Cash paid at June 19, date of exchange Rp. 3.900.000

Equipment traded-in (old equipment)

Cost of old equipment Rp. 4.000.000
Acc. Dep. at date of exchange Rp 3.200.000
Book value at June 19, date of exchange Rp 800.000
 Recorded cost of new equipment

a. Method One:
List price Rp. 5.000.000
Trade-in allowance on old equipment Rp. 1.100.000
Book Value of old equipment Rp. 800.000
Unrecognized gain on exchange ( Rp, 300.000)
Cost of new equipment Rp. 4.700.000
b. Method Two
Book Value of old equipment Rp. 800.000
Cash paid at date exchange Rp. 3.900.000
Cost of new equipment Rp. 4.700.000
 Journal entry to record new equipment
Date Description Reff. Debit Credit
2008
June 19 Accumulated Depreciation-Equipment 3.200.000
Equipment (New) 4.700.000
Equipment (old) 4.000.000
Cash 3.900.000
Exchanging Similar Assets (Losses)
To illustrate as follows
Similar New equipment
List price Rp. 10.000.000
Trade-in allowance on old equipment Rp. 2.000.000
Cash paid at Sept, date of exchange Rp. 8.000.000

Equipment traded-in (old equipment)

Cost of old equipment Rp. 7.000.000
Acc. Dep at date of exchange Rp 4.600.000
Book value at Sept date of exchange Rp 2.400.000
Trade-in allowance on old equipment Rp. 2.000.000
Loss on exchange Rp. 400.000
 Date Description Reff. Debit Credit
2008
Sept. 7 Accumulated Depreciation-Equipment 4.600.000
Equipment (New) 10.000.000
Loss on disposal of fixed asset 400.000
Equipment (old) 7.000.000
Cash 8.000.000
BERLIAN MUDA, CO
LIST OF PROPERTY, PLANT, AND EQUIPMENT
END OF YEARS' ENDED 2008

(in rupias)
Date Depreciation Book Value
No. Code Type of Assets acquired Cost Acc.Dep.2007 2008 Acc.Dep.2008 2008
Vehicles
1 1311 Box Car 03/02/2003 72.000.000 34.800.000 1.740.000 36.540.000 35.460.000
2 1312 Trucks 04/04/2003 84.000.000 39.900.000 19.950.000 59.850.000 24.150.000
Total 156.000.000 74.700.000 21.690.000 96.390.000 59.610.000
Machines
1 1321 Genzet 05/01/2003 20.000.000 9.333.334 4.666.667 14.000.001 5.999.999
2 1322 Generator 04/10/2004 80.000.000 29.333.334 14.666.667 44.000.001 35.999.999
3 1323 Diesel 02/05/2003 200.000.000 98.333.334 49.166.667 147.500.001 52.499.999
Total 300.000.000 137.000.002 68.500.001 205.500.003 94.499.997

Equipment
1 1331 Computer 07/07/2004 34.000.000 17.850.000 8.925.000 26.775.000 7.225.000
2 1332 Of f ice Furniture 07/02/2004 160.000.000 84.000.000 42.000.000 126.000.000 34.000.000
3 1333 Of f ice Equipment 03/02/2003 60.000.000 43.500.000 2.175.000 45.675.000 14.325.000
Total 254.000.000 145.350.000 53.100.000 198.450.000 55.550.000

Buildings
1 1341 Warehouse 01/02/2003 150.000.000 37.500.000 20.000.000 57.500.000 92.500.000
2 1342 Of f ice Building 01/02/2003 90.000.000 21.375.000 12.500.000 33.875.000 56.125.000
3 1343 Plant A 01/02/2003 240.000.000 60.000.000 10.000.000 70.000.000 170.000.000
4 1344 Plant B 04/02/2003 120.000.000 30.000.000 71.250.000 101.250.000 18.750.000
Total 600.000.000 148.875.000 113.750.000 262.625.000 337.375.000

Total 1.310.000.000 505.925.002 257.040.001 762.965.003 547.034.997