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Economics Chapter 3 Fixed Assets
Economics Chapter 3: Fixed assets (initial measurement of self-built fixed assets, disposal costs, safety production costs, depreciation scope, influencing factors and impairment of fixed assets)
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Economics Chapter 3 Fixed Assets
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- Plant asexual reproduction
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- Reproductive development of animals
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Chapter 3 Fixed Assets
Section 1 Recognition and Initial Measurement of Fixed Assets
Nature and recognition conditions of fixed assets
Definition: 1. Tangible assets; 2. Held for the production of goods, provision of services, leasing or operation and management; 3. The useful life exceeds one accounting year.
Recognition conditions: Economic benefits are likely to flow into the enterprise; costs can be measured reliably
Note: Each component of a fixed asset has a different service life or provides economic benefits to the enterprise in different ways. If different depreciation rates or depreciation methods are used, each component should be recognized as a single fixed asset.
Initial measurement of fixed assets: Initial measurement based on initial acquisition cost
Definition: The definition of fixed asset cost refers to all reasonable and necessary expenditures incurred by an enterprise to purchase and construct a fixed asset before it reaches its intended usable state.
Including directly incurred purchase price, transportation charges, insurance premiums, packaging fees and installation costs, indirect expenses, such as the capitalized portion of borrowing interest that should be borne, the exchange difference of special foreign currency borrowings that meet the capitalization conditions, and other indirect expenses that should be apportioned
Purchased fixed assets
Purchase price, relevant taxes (import tax, consumption tax, vehicle purchase tax and non-deductible value-added tax input tax, etc.), transportation fees, loading and unloading attributable to the asset incurred before the fixed asset reaches its intended usable condition fees, installation fees and professional service fees, etc.
Professional service fees are included in the cost of fixed assets, and employee and training fees should be included in the current profit and loss when incurred.
Purchase fixed assets that do not require installation
Borrow: fixed assets
Taxes payable--VAT payable (input tax)
Loan: bank deposit, etc.
Purchase fixed assets that need to be installed
At the time of purchase
Borrow: Project under construction
Taxes payable--VAT payable (input tax)
Loan: bank deposit, etc.
Install fixed assets
Borrow: Project under construction
Loan: payable to employees, etc.
Transfer to fixed assets after reaching the intended usable state
Borrow: fixed assets
Credit: Construction in progress
Special considerations for outsourcing fixed assets
If an enterprise purchases multiple fixed assets without separate prices for a single sum, the total cost shall be allocated according to the fair value ratio of each fixed asset and the cost of each fixed asset shall be recognized separately.
If the price of an enterprise's purchase of fixed assets exceeds the deferred payment under normal credit terms and is essentially financing in nature, the cost of the fixed assets shall be determined based on the present value of the purchase price. The difference between the actual price paid and the present value of the purchase price shall be amortized using the actual interest rate method within the credit period. Except for the amortization amount that meets the conditions for capitalization of borrowing costs, it shall be included in the cost of fixed assets, and the rest shall be included in the cost of fixed assets. It should be recognized as financial expenses within the credit period and included in the current profit and loss.
Borrow: Construction in progress (fixed assets) (present value of purchase price)
Unrecognized financing charges (interest payable in the future)
Loans: long-term payables (principal and interest payable in the future)
Amortization amount of unrecognized financing expenses = principal balance payable at the beginning of the period * actual interest rate = (balance of long-term payables at the beginning of the period - balance of unrecognized financing expenses at the end of the period) * actual interest rate
If when disposing of fixed assets, the contract requires the buyer to bear unpaid payables at the same time, the recognition of "long-term payables" and "unrecognized financing expenses" that have not been amortized should be terminated at the same time. Otherwise, they should continue to be accounted for as liabilities.
Build your own fixed assets
Self-operated construction of fixed assets
The cost should be measured according to direct materials, direct labor, direct machinery construction costs, etc.
When a project uses inventory goods, the inventory goods do not leave the accounting entity and are not recognized as income, nor do they involve output value-added tax.
When general taxpayers of VAT purchase raw materials for use in projects under construction for movable or immovable properties, the input tax on the purchase of raw materials is allowed to be deducted, and there is no need to transfer out the input VAT when they are used.
1. The actual cost of various materials prepared by an enterprise for the construction of fixed assets shall be based on the actual purchase price, transportation fees, insurance premiums and other relevant taxes paid. The input tax on engineering materials used for production equipment can be deducted
2. Project material inventory surplus, inventory loss, scrapping and damage
Inventory losses, scrapping and damage
Construction period: Net losses caused by natural disasters are included in non-operating expenses
Borrow: Project under construction
Credit: Engineering supplies
After the project is completed
Debit: Non-operating expenses (net loss)
Credit: Engineering supplies
Pan Ying
During construction
Borrow: Engineering supplies
Credit: Construction in progress (net income)
After the project is completed
Borrow: Engineering supplies
Credit: Non-operating income (net income)
3. Project materials, raw materials or inventory commodities used in the construction of fixed assets shall be transferred to the cost of the constructed project according to their actual costs. The employee salaries that should be borne by the self-operated construction of fixed assets, the water, electricity, repair, transportation and other services provided by the auxiliary production department, as well as other necessary expenses, etc., should also be included in the cost of the constructed project.
4. When an enterprise builds fixed assets by itself, the project costs incurred should be accounted for through the "construction in progress" account. When the project is completed and reaches the intended usable state, the "construction in progress" account will be transferred to the "fixed assets" account.
5. If the built fixed assets have reached the intended usable state, but the final accounts for completion have not yet been processed, they shall be transferred to fixed assets at the tentative estimated value based on the project budget, cost, actual project cost, etc., when they reach the intended usable state. Depreciation of fixed assets shall be accrued in accordance with relevant provisions on accrual of depreciation of fixed assets. The original tentative estimated value will be adjusted after the final settlement procedures are completed, but there is no need to adjust the originally accrued depreciation amount.
6. Production safety fees withdrawn by enterprises in high-risk industries in accordance with national regulations are handled as follows:
Propose that safety production is time-consuming
Borrow: production costs, manufacturing expenses (or current profit and loss)
Credit: Special Reserve
Using extracted safety production is time consuming
It is an expense and is directly offset against the special reserve.
Borrow: special reserve
Loan: bank deposit
When expenditures are incurred on fixed assets
Borrow: Project under construction
Taxes payable - VAT payable (input tax)
Loans: bank deposits/employee salary payable, etc.
When the intended usable state is reached
Borrow: fixed assets
Credit: Construction in progress
Borrow: special reserve
Credit: Accumulated depreciation (one-time provision of depreciation based on the recorded amount of fixed assets)
Fixed assets constructed through outsourcing
Expenses include: construction project expenses, installation project expenses, and your deferred expenses that need to be apportioned into the cost of each fixed asset. Prepaid expenses refer to those incurred during the construction period and cannot be directly included in the value of a certain fixed asset. Instead, the fixed assets to be constructed should bear the relevant expenses together.
Distribution rate of deferred expenditures = accumulated deferred expenditures / (expenditures for construction projects, expenditures for installation projects, expenditures for equipment being installed) * 100%
***The allocable deferred expenditure of the project = (**Construction engineering expenditure of the project **Installation project expenditure **Installation equipment expenditure of the project) * Distribution rate of deferred expenditure
Cost of fixed assets acquired by other means
Fixed assets with disposal costs
Treatment principles: 1. Include future disposal expenses in expenses during the period when the asset is used to generate income; 2. Include the present value of disposal expenses in the cost of fixed assets and include them in expenses through accrual of depreciation. The difference between the present value of the cost and the disposal cost is included in the expense by accruing interest.
Borrow: fixed assets
Credit: Construction in progress (actual construction costs incurred)
Estimated liabilities (present value of disposal costs)
Debit: Financial expenses (amortized cost of expected liabilities at the beginning of each period * actual interest rate)
Credit: Estimated liabilities
Debit: Estimated liabilities
Credit: bank deposit, etc. (when disposal expenses are incurred)
hint
1. For specific fixed assets in special industries, when there are disposal costs, the present value of the disposal costs needs to be included in the recorded value of the fixed assets.
2. The difference between the final amount of disposal costs (future value) and the value (present value) included in the fixed assets is amortized according to the effective interest method and included in the current profit and loss as financial expenses for the entire period.
The scrapping and cleaning expenses incurred by fixed assets of general industrial and commercial enterprises are not disposal expenses and should be treated as disposal expenses of fixed assets when incurred.
4. Due to technological progress, legal requirements or changes in the market environment, the amount of expenditure, estimated time of disposal, discount rate, etc. may change when specific fixed assets perform the disposal obligation, resulting in changes in the originally recognized estimated liabilities. At this time, adjustments should be made according to the following principles:
For the reduction of estimated liabilities, the cost of fixed assets is deducted to the limit of the book value of fixed assets. If the estimated liability decreases and exceeds the book value of the fixed asset, find the department to recognize as profit or loss for the current period.
For an increase in estimated liabilities, increase the cost of fixed assets
The accounting treatment for external sales of products or by-products produced by an enterprise before the fixed assets reach the intended usable state or during the research and development process.
trial sales
The income and costs related to the trial operation sales shall be accounted for separately and included in the current profit and loss. The net amount after the trial operation sales related income has offset the costs shall not be used to offset the fixed asset cost or R&D expenditure.
Expenditures incurred to test whether fixed assets are functioning properly
should be included in fixed asset costs. Specifically, it refers to evaluating whether the technical and physical performance of the fixed asset can meet standard activities such as producing products, providing services, leasing to external parties, or being used for management, rather than evaluating the financial performance of the fixed asset.
Presentation and disclosure
Determine whether it is a daily activity. If it is a daily activity, it will be listed in the operating income and operating costs. If it is a non-daily activity, it will be listed in the "asset disposal income". At the same time, the company should separately disclose the relevant income and cost amounts of trial sales in the notes, specific presentation items, and important accounting estimates used in determining the costs related to trial sales and other relevant information.
Section 2 Subsequent Measurement of Fixed Assets
Fixed asset depreciation
Definition of fixed asset depreciation
The accrued depreciation amount refers to the amount after deducting the estimated net residual value from the original price of the fixed asset. If an impairment provision has been made for the fixed asset, the cumulative amount of the fixed asset depreciation provision that has been made shall also be deducted.
Factors affecting fixed asset depreciation
Original value of fixed assets
Estimated net residual value
Fixed asset impairment provision
The useful life of fixed assets. When an enterprise confirms the life of fixed assets, it should consider the following factors:
The asset’s estimated production capacity or physical output
The asset is expected to suffer physical wear and tear
The asset is expected to suffer intangible losses
Restrictions on the use of the asset by law or similar regulations
Scope of depreciation of fixed assets
Fixed assets that increase in the current month will be depreciated from the next month, and fixed assets that decrease in the current month will not be depreciated from the next month.
spatial extent
Depreciation
Fixed assets that have reached the intended usable state but have not yet processed the final accounts for completion
Unused and unused fixed assets
Fixed assets leased under operating lease
Leasehold fixed assets classified as right-of-use assets
Fixed assets undergoing seasonal maintenance
No provision for depreciation
Fixed assets that have been fully depreciated but are still in use
Land separately priced and accounted for
Fixed assets that are scrapped in advance
Fixed assets classified as held for sale
Fixed assets in the process of renovation
Fixed assets that have been leased by financial lease, such as: leased factories that are subsequently measured using the fair value model
Leasehold fixed assets classified into short-term leases and low-value asset leases
Fixed assets with full provision for impairment
Methods of depreciating fixed assets
Averaging method
workload method
Depreciation amount per unit of workload = (Original price of fixed assets - Estimated net residual value) / Estimated total workload
The monthly depreciation amount of a single fixed asset = the monthly workload of the fixed asset * the depreciation amount per unit workload
double declining balance method
Annual depreciation amount = prescribed net asset value at the beginning of the period * 2 / estimated service life
The last two years were changed to the averaging method.
Before the change to the straight-line method, the impact of the estimated net residual value was not considered when calculating depreciation.
sum of years digits method
Annual depreciation = (original price - estimated net residual value) * annual depreciation rate
The annual depreciation rate is expressed by a set of decreasing fractions. The expected service life in years is added up as the denominator of the decreasing fraction, and the reverse order of the years in each period is used as the numerator of the decreasing fraction in every other year.
For example, if the estimated service life is 5 years, the depreciation rates in the first year are 5/(1 2 3 4 5), and so on.
Accounting treatment of fixed asset depreciation
Debit: Manufacturing expenses (depreciation for the production workshop)
Management expenses (enterprise management department, depreciation of unused fixed assets)
Sales expenses (depreciation provided by the company’s dedicated sales department)
Other business costs (depreciation of fixed assets leased by enterprises)
R&D expenditure (depreciation of fixed assets used by enterprises to develop intangible assets)
Construction in progress (depreciation of fixed assets used in construction in progress)
Credit: Accumulated depreciation
Review of estimated useful life, estimated net residual value and depreciation method of fixed assets
If the estimated service life is different from the original estimate, the service life of the fixed assets shall be adjusted.
If the estimated net residual value is different from the original estimate, the estimated net residual value should be adjusted.
If the expected consumption pattern of economic benefits related to fixed assets changes significantly, the enterprise shall change the depreciation method of fixed assets.
Subsequent expenditures on fixed assets
It refers to the renovation expenditures, repair costs, etc. incurred during the use of fixed assets.
Capitalized subsequent expenditure
Subsequent expenditures related to renovation and transformation of fixed assets that meet the conditions for recognition of fixed assets shall be included in the cost of fixed assets, and the book value of the replaced department shall be deducted.
1. Transfer the book value of fixed assets to projects under construction
Borrow: Project under construction
Accumulated depreciation
Fixed asset impairment provision
loan fixed assets
2. Deduct the book value of the replaced part
Debit: bank deposit (replaced without selling price)
Non-operating expenses (difference)
Credit: Construction in progress (book value of the replaced part)
3. Subsequent capitalized expenditures
Borrow: Project under construction
Loan: Payable to employee salaries/raw materials, etc.
4. Reach the intended usable state
Borrow: fixed assets
Credit: Construction in progress
Expensed subsequent expenses
Subsequent expenditures such as repair costs related to fixed assets that do not meet the conditions for capitalization shall be included in the current profit and loss or included in the cost of the relevant assets according to the beneficiary objects when incurred, and shall be dealt with separately according to different situations.
1. Subsequent expenditures on fixed assets related to the production and processing of inventories (such as daily repair costs) are handled in accordance with the inventory cost determination principle.
2. Routine repair costs of fixed assets incurred by administrative departments, enterprise-specific sales agencies, etc. shall be included in administrative expenses or sales expenses according to functional classification.
Section 3 Disposal of Fixed Assets
Recognition conditions for termination of fixed assets
Including the sale, transfer, scrapping or destruction of fixed assets, external investment, non-monetary asset exchange, debt restructuring, etc.
Conditions for derecognition: 1. The fixed asset is in a state of disposal; 2. The fixed asset is not expected to generate economic benefits through use or disposal.
Accounting processing of fixed asset disposal
Inventory of fixed assets
Accounting treatment of fixed assets surplus
Accounting treatment of fixed asset inventory losses