Fixed Assets Interview Preparation Guide

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At the time of addition

Assets NA account -------dr

To asset clearing account ----CR

At the time of retirement

the nbv amount has been moved to the gain & loss account.

In sale case

we need to pass a journal entry to transfer the amount from gain & loss account cr and asset sale clearing account cr.

Loading, Unloading and Installation Charges during the time of shifting of the company cant be capitalised as such these Expenses are of (Opex) Operating Expenses nature.

Following are the depriciation methods that are used in FA module:

1. Flat rate method
2. Calculated method
3. Table method
4. Formula method
5. Production method
6. STL
7. DEMINISHING
8. Time-Hour

The expenses can only be capitalised in the following circumstances:
1. It must be related with the asset.
2. It must be essential to make the asset in working condition.
3. It must be above the capitalisation limit as per the prescribed policies.

There are two types of fixed assets tangible and intangible assets.

Tangible assets: A physical asset whose presence can be felt and touched.
Ex. Furniture and Fixtures, Plant and Machinery

Intangible Assets: Assets whose presence cannot be felt or touched.
Ex: Goodwill, patents, trademarks.

Asset life cycle means the cycle in which the asset canprovide or help provide futureeconomic benefits. Each asset has a specific life cycle, it can be measured by evaluating the asset itself.

We can decided which method of deprecation is best on the basis of usefulness (benefits) provided by the asset.
When we prefer SLM:-
we preferred SLM where the equal amount of benefit is derived from the asset through the useful life of the asset. e.g A room's capacity of storing the goods remain same in each year weather old or new.
When we prefer DBM:-
we preferred DBM where resulting benefit from the asset diminishing (decreasing) year by year.

Diminishing Balance Method or Written Down Value Method

Under this method, depreciation is charged at a fixed rate every year but on
reducing balance i.e., on balance reduced each year during the economic life of
the asset by the amount of depreciation till the asset is reduced to its scrap
value.

For example, if the cost of the asset is Rs. 1,000 the rate of depreciation
is 10 % on Rs. 1,000 i.e., Rs. 100, in the second year, it will be 10 % on Rs
900 i.e., Rs. 90 is the third year, it will be 10 % on Rs 810 (900-90) i.e., Rs.
81 and so on.

(Purchase Price of Asset - Approximate Salvage Value) Estimated Useful
Life of Asset

Example: You buy a new computer for your business costing approximately
$5,000. You expect a salvage value of $200 selling parts when you dispose of it.
Accounting rules allow a maximum useful life of five years for computers. In the
past, your business has upgraded its hardware every three years, so you think
this is a more realistic estimate of useful life, since you are apt to dispose
of the computer at that time. Using that information, you would plug it into the
formula:

($5,000 purchase price - $200 approximate salvage value) 3 years estimated
useful life

The answer, $1,600, is the depreciation charges your business would take
annually if you were using the straight line method.

Types of Depreciation

1) Straight Line Method

2) Written down value method

Depreciation refers to decrease in the value of assets due to fear of obsolete and use, in-fact most of the assets have limited useful life. but there are some examples like land value of which almost not depreciate because value of land not decreased and it has its unlimited life. so we can say that if the value of assets not decreased due to impact of time then its value should not be depreciated, item like antique 7 paintings normally increase as they pass the time so in my opinion it should not be depreciated.

advances on asset side are those advances which are paid for now but realize at future date. so it is an assets to the company. And Loan on assets side ate those loans which are given by the company and to be recovered in future with interest. so it is an asset to the company.

PF Contribution Rate : 12 % by employee & 12 % by Company on BASIC SALARY + DA + HRA

ESI Contribution Rate : 1.75% by Employee & 4.75 % by Company on BASIC SALARY + DA + HRA

Direct taxes are nothing but , collecting tax by govt directly from the specified assesses, example is Income tax , wealth tax.
Where as indirect taxes are collecting indirectly from consumers say u are bearing excise duty on all manufactured products, Examples are VAT, Excise duty , customs duty, Service tax

As per Accounting standard 16 specified by ICAI , Borrowing cost, Interest cost even though non capital in nature which must be capitalized if they incurred for acquisition of Qualifying capital asset, but those cost shall be capitalized only up to the date of commencement of production utilizing such capital asset, Any amount of interest incurred after commencement of production shall not be capitalized and shall be debited to Profit and loss account.

If a company purchase plant & machinery for its factory use by investing large amount of money and assume that expected life of P&M is 10 years and which generates revenve for the company more one financial year. Hence this investment cannot be treated expenses for one Financial year therefore same to be kept as fixed asset under P&M head and depricaication will be charged every year based on applicable % & transferred to profit and loss a/c.

Fixed asset is which ever item is not transferable into cash easily is nothing but fixed asset

Following are the steps:

1.First activate the Dep areas(book & tax) in asset class.
2.Assigng Dep key to Dep Areas either at Asset class level or Asset master data level.
3.Assign Screen layout to dep areas.
4.Determine how Dep Areas post to general ledger.
5.Assign G/L accounts.
6.Define posting rules and document type for Depriciation

Once the asset is purchased it is recorded in the books of accounts by using money measurement concept. It takes in to account only the expenditure incurred for purchasing the asset.

As per the company procedures depreciation will be calculated. Depreciation fund will be maintained.

Asset Accounting component in SAP is meant for managing and supervising fixed assets and their values.

In Revaluation Method,the amount of depreciation at the end will be deducted from the beginning Eg. Bottles,Tools.....

In sinking fund method, the amount of depreciation will be invested outside the business & this will be used for Replacement of Asstes,Buying a new assets.

Fixed asset means it gives long term benefits to the organisation by year end we should find the accurate value of the asset for this purpose we must calculate the depreciation.

Depreciation is a Gradual Diminishing or Decrease in the value of fixed assets due wear & tear, Obsolence.

Straight Line - divide the NBV by the number of periods of it's useful life. 4-4-5 - similar to straight line but calculated by number of weeks in a period.

Yes, as it will be added to the cost of the project