Current Asset And Fixed Asset

 

1.Understanding current assets and fixed assets

(A) current assets (current assets)Current assets are assets that can be cashed or can be used as money in the short term (within one accounting cycle). An asset is classified as current assets if the assets meet the following requirements:(1) is expected to be realized or held for sale or use within the normal operating cycle of the company, or(2) held for trading or for short-term goals and are expected to be realized within 12 months from the balance sheet date, or
       (3) in the form of cash or cash equivalents whose use is not restricted.
            Examples of current assets are cash, accounts receivable, merchandise inventory, supplies, prepaid insurance, and so on. Constituent in the balance sheet is set according to the order of their liquidity levels. That is, the most liquid current assets are listed at the top, followed by the other items that are less liquid.(B) Long-term investments (long term investment)
      Companies that have substantial funds and are not immediately used, it will be investing in other companies, in the form of the purchase of securities (stocks or bonds) or other forms. If the company retains ownership in the long term, the asset is called long-term investment. The purpose of this investment is to use corporate funds are not / have not been used in the hope of gain, either capital gain (increase in value of investments) and dividend (share of profits) or flowers. Ownership of securities is planned for a long time. If ownership of securities is planned in the short (sold) the investment of this type include current assets.(C) Fixed Assets (Fixed Assets) Fixed assets are tangible assets acquired by the company in the form of ready-made or to be built first, which is used in the operation of the company, not intended for sale within the framework of normal business activities and have a useful life of more than one years.II. MEASUREMENT OF FIXED ASSETSAs to the measurement of fixed assets can be divided into two parts, namely:A. Initial Measurement of Assets Such As Obtained
            Fixed assets that qualify to be categorized as fixed assets are initially measured at cost. The cost of an asset is the sum of the costs incurred by an entity and is required to prepare the asset to be used properly as a fixed asset. The cost of fixed assets in accordance with SFAS No. 16, Revised 2007 include:1. Acquisition costs, including import duties and taxes and can not be credited after deducting discounts and other bits2. Costs that are directly attributable to bring the asset to the location and condition you want to be an asset in accordance with the intent and purpose of management. Examples of costs that are directly attributable to:a. Site preparation costsb. Handling cost and early deliveryc. Assembly and installation costsd. Costs of testing whether the asset can operate properly, net proceeds from the sale of products produced on the teste. Commission professionals such as architects and engineers3. The estimated cost of dismantling and removing the item and restoring the site on assets is generally the value of the acquisition of a fixed asset equal to the total cost (can be a cash or non-cash) to acquire these assets, in addition to this, the fixed assets can be obtained from the exchange of non-monetary assets . The main principle of the measurement of the assets acquired from the exchange of fixed assets is to use fair value, in which case the fair value of the assets exchanged are not known, the book value of the asset can be used.B. Measurement after Initial RecognitionMeasurements performed on fixed assets other than acquisition was also performed at the beginning of the period after the fixed assets acquired. In the SFAS 16 (Revised 2007) there is a significant change in the accounting treatment of fixed assets mainly on measuring the value of fixed assets after the acquisition. SFAS 16 (Revised 2007) recognized the two methods in the accounting treatment of fixed assets. Both methods are:1. Historical Cost Method (SFAS SFAS Revision of 1994 and 2007)
 With this method after the asset continues to be recognized as fixed assets, fixed assets are recorded at cost less accumulated depreciation and any impairment in value of the assets.2. Revaluasian method (SFAS Revised 2007)With this method after the asset continues to be recognized as fixed assets, the assets whose fair value can be reliably measured should be recorded on the number revaluasian, the fair value at the date of revaluation less accumulated depreciation and accumulated impairment losses that occur after the date of revaluation. Revaluation of fixed assets should be conducted with sufficient regularity to ensure that the regular carrying amount does not differ materially from the amount determined using fair values ​​at the balance sheet date. Determination of the value of the assets using the fair value is generally done through a qualified professional appraiser. To conduct an assessment of the land and buildings is usually assessors using market evidence. while for the valuation of fixed assets such as plant and equipment appraiser will determine the fair market value of the self. In the absence of trade in markets of similar assets, the determination of the fair market value can be done with the income approach or a depreciated replacement cost (depreciated replacement cost approach). The frequency of revaluation implementation itself depends on changes in the fair value of an asset. If the fair value is materially different from the revaluation, the revaluation should be carried further. For assets that have wajarsecara fluctuate and change its value significantly, the revaluation can be conducted each year. While for some other assets that do not undergo significant changes and fluctuations, revaluations do not need to be implemented each year. For such a revaluation of assets can be made every three years or five years. For the revaluation model, the treatment of accumulated depreciation of fixed assets at the date of revaluation can be performed with one of the following ways:a) restated proportionately with the change and the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals the number revaluasian. This method is often used when the revalued assets by giving the index to determine the depreciated replacement cost (depreciated replacement cost).b) Eliminated against the gross carrying amount of the asset and the carrying amount net of eliminations revaluasian restated amount of the asset. This method is often used for buildings revaluation conducted on a group of assets with similar uses carried out simultaneously. This treatment aims to avoid selective revaluation treatment and mixing cost and other values ​​at different. However, revaluation of assets within the group to do in turn (rolling) along the entire revaluation can be completed in a short time and updated throughout the revaluation. In recognition of the increase or decrease in value due to revaluation carried out directly on the increase or decrease due to revaluation, unless the revaluation done in subsequent years. If the revaluation carried out for the second time and so on, there are different treatments. The differences are:• If the carrying amount of assets increases due to revaluation, the increase is credited directly to equity in the revaluation surplus. However, this increase should be recognized in profit or loss until the amount due to revaluation of asset impairment has ever done before in the income statement.• If the carrying amount of assets fell due to revaluation, the decrease is recognized in profit or loss. But the decline in value due to revaluation is debited directly in equity in the revaluation surplus for the decrease does not exceed the credit balance of the revaluation surplus for the asset. The determination of fair value is also done when the company has determined the existence of fixed assets to be sold, primarily related to the termination of the company's operations. Depreciation on fixed assets is a systematic allocation of the cost at the time of initial acquisition and after the acquisition costs that can be capitalized. Depreciation during the useful life of the asset. The depreciable amount of an asset is the carrying amount (either the cost model or revaluation model) minus the residual value of the asset. The carrying amount is depreciated by the choice of depreciation methods. Self depreciation method should reflect the expectations of the consumption of future economic benefits of the asset by the entity. Depreciation is recognized in profit or loss for the period unless the expenditures are included in the carrying amount of the other assets.

Current assets are those that form part of the circulating capital of a business. They are replaced frequently or converted into cash during the course of trading. The most common current assets are stocks, trade debtors, and cash.

Compare current assets with fixed assets. A fixed asset is an asset of a business intended for continuing use, rather than a short-term, temporary asset such as stocks.

Fixed assets must be classified in a company's balance sheet as intangible, tangible, or investments. Examples of intangible assets include goodwill, patents, and trademarks. Examples of tangible fixed assets include land and buildings, plant and machinery, fixtures and fittings, motor vehicles and IT equipment.

How should the changing value of a fixed asset be reflected in a company's accounts?

The benefits that a business obtains from a fixed asset extend over several years. For example, a company may use the same piece of production machinery for many years, whereas a company-owned motor car used by a salesman probably has a shorter useful life.

By accepting that the life of a fixed asset is limited, the accounts of a business need to recognise the benefits of the fixed asset as it is "consumed" over several years.

This consumption of a fixed asset is referred to as depreciation.

Definition of depreciation

Financial Reporting Standard 15 (covering the accounting for tangible fixed assets) defines depreciation as follows:

"the wearing out, using up, or other reduction in the useful economic life of a tangible fixed asset whether arising from use, effluxion of time or obsolescence through either changes in technology or demand for goods and services produced by the asset.'

A portion of the benefits of the fixed asset will be used up or consumed in each accounting period of its life in order to generate revenue. To calculate profit for a period, it is necessary to match expenses with the revenues they help earn.

In determining the expenses for a period, it is therefore important to include an amount to represent the consumption of fixed assets during that period (that is, depreciation).

In essence, depreciation involves allocating the cost of the fixed asset (less any residual value) over its useful life. To calculate the depreciation charge for an accounting period, the following factors are relevant:

- the cost of the fixed asset;

- the (estimated) useful life of the asset;

- the (estimated) residual value of the asset.

What is the relevant cost of a fixed asset?

The cost of a fixed asset includes all amounts incurred to acquire the asset and any amounts that can be directly attributable to bringing the asset into working condition.

Directly attributable costs may include:

- Delivery costs

- Costs associated with acquiring the asset such as stamp duty and import duties

- Costs of preparing the site for installation of the asset

- Professional fees, such as legal fees and architects' fees

Note that general overhead costs or administration costs would not be included as part of the total

costs of a fixed asset (e.g. the costs of the factory building in which the asset is kept, or the cost of the maintenance team who keep the asset in good working condition)

The cost of subsequent expenditure on a fixed asset will be added to the cost of the asset provided that this expenditure enhances the benefits of the fixed asset or restores any benefits consumed.

This means that major improvements or a major overhaul may be capitalised and included as part of the cost of the asset in the accounts.

However, the costs of repairs or overhauls that are carried out simply to maintain existing performance will be treated as expenses of the accounting period in which the work is done, and charged in full as an expense in that period.

What is the Useful Life of a fixed asset?

An asset may be seen as having a physical life and an economic life.

Most fixed assets suffer physical deterioration through usage and the passage of time. Although care and maintenance may succeed in extending the physical life of an asset, typically it will, eventually, reach a condition where the benefits have been exhausted.

However, a business may not wish to keep an asset until the end of its physical life. There may be a point when it becomes uneconomic to continue to use the asset even though there is still some physical life left.

The economic life of the asset will be determined by such factors as technological progress and changes in demand. For purposes of calculating depreciation, it is the estimated economic life rather than the potential physical life of the fixed asset that is used.

Long-term Liabilities

Defining long-term liabilities

Long-term liabilities refer to the category of debts presented on the balance sheet of a company which are required to be repaid during the upcoming twelve months, but that instead are required to be paid back within a year or more. Putting other way, Long-term liabilities involve a future benefit of more than a year, like notes payable that mature after a period of more than one year. The Long-term liabilities, in accounting, are listed on the right wing of the balance sheet representing the source of funds.

Conventionally, the part of Long-term liabilities required to be paid within the coming 12 months are categorized as current liabilities. For instance, a loan with two due payments for $1,000 each, one in the next twelve months and the second after that date, the first $1,000 would be classified as a current liability unlike the second being classified as a long term liability. Long-term liabilities are, therefore, a way of indicating that something has to eb paid off in a time period longer than one year.

Examples

Some of the examples of Long-term liabilities include mortgage loans, debentures, and other bank loans.

Types of long-term liabilities

Long-term liabilities are the obligations of a company extending beyond the current year, or alternatively, beyond the current operating circle. Generally, the following Long-term liabilities are found on a company’s balance sheet:

• Financing Liabilities

These include notes payable (debt issued to a single investor), Bonds payable (debt issued to general public or investors’ group), and convertible bonds (debt with provision for bond holders to redeem their bonds for common shares, or bonds issued in combination with warrants to purchase stock.)

• Operating Liabilities

These include capital lease obligations (contract to pay rent for the use of plant, equipment, or property and involving the company to bear a risk as if it owned an asset), postretirement benefit obligations (retirement benefits payable under pension plan), and other expenses incurred (including deferred income tax or contingent obligations, like law suits that have not yet been settled).

Simple Present :

1.        current assets (current assets)Current assets are assets that can be cashed or can be used as money in the short term (within one accounting cycle). An asset is classified as current assets if the assets meet the following requirements
2.  Examples of current assets are cash, accounts receivable, merchandise inventory, supplies, prepaid insurance, and so on. Constituent in the balance sheet is set according to the order of their liquidity levels Long-term investments (long term investment)
3.    Companies that have substantial funds and are not immediately used, it will be investing in other companies, in the form of the purchase of securities (stocks or bonds) or other forms.
4.    MEASUREMENT OF FIXED ASSETSAs to the measurement of fixed assets can be divided into two parts, namely:A. Initial Measurement of Assets Such As Obtained
   Fixed assets that qualify to be categorized as fixed assets are initially measured at cost. The cost of an asset is the sum of the costs incurred by an entity and is required to prepare the asset to be used properly as a fixed asset.
5.       Costs that are directly attributable to bring the asset to the location and condition you want to be an asset in accordance with the intent and purpose of management. Examples of costs that are directly attributable to:a. Site preparation costsb. Handling cost and early deliveryc. Assembly and installation costsd.
6.        Measurement after Initial RecognitionMeasurements performed on fixed assets other than acquisition was also performed at the beginning of the period after the fixed assets acquired. In the SFAS 16 (Revised 2007) there is a significant change in the accounting treatment of fixed assets mainly on measuring the value of fixed assets after the acquisition.
7.        Revaluasian method (SFAS Revised 2007)With this method after the asset continues to be recognized as fixed assets, the assets whose fair value can be reliably measured should be recorded on the number revaluasian, the fair value at the date of revaluation less accumulated depreciation and accumulated impairment losses that occur after the date of revaluation.
8.        In the absence of trade in markets of similar assets, the determination of the fair market value can be done with the income approach or a depreciated replacement cost (depreciated replacement cost approach).
9.       Current assets are those that form part of the circulating capital of a business. They are replaced frequently or converted into cash during the course of trading. The most common current assets are stocks, trade debtors, and cash.
10.   Long-term liabilities refer to the category of debts presented on the balance sheet of a company which are required to be repaid during the upcoming twelve months, but that instead are required to be paid back within a year or more. Putting other way, Long-term liabilities involve a future benefit of more than a year, like notes payable that mature after a period of more than one year. The Long-term liabilities, in accounting, are listed on the right wing of the balance sheet representing the source of funds.