FIXED ASSETS (PROPERTY, PLANT, AND EQUIPMENT )

FIXED ASSETS FIXED ASSETS (PROPERTY, PLANT, AND EQUIPMENT(PROPERTY, PLANT, AND EQUIPMENT))

A.A. CHARACTERISTICSCHARACTERISTICS

1) They are acquired for use in operations and not for resale1) They are acquired for use in operations and not for resale2) They are long term in nature and usually subject to 2) They are long term in nature and usually subject to

depreciationdepreciation3) They possess physical substance3) They possess physical substance

Examples of fixed assets (property, plant and equipment)Examples of fixed assets (property, plant and equipment)LandLandBuilding structures (offices, factories, warehouses)Building structures (offices, factories, warehouses)Equipment ( machinery, furniture, tools, vehicles)Equipment ( machinery, furniture, tools, vehicles)

B. ACQUISITION OF B. ACQUISITION OF PROPERTY, PROPERTY, PLANT, AND PLANT, AND EQUIPMENTEQUIPMENT

Cost of property, plant and equipment includes all amount spent toCost of property, plant and equipment includes all amount spent toget it in place and ready for use get it in place and ready for use

1) Cost of acquiring land1) Cost of acquiring landa) Purchase price a) Purchase price f) Surveying feesf) Surveying feesb) sale taxesb) sale taxes g) delinquent real estateg) delinquent real estatec) permits from governmenth) c) permits from governmenth) Razing or removing Razing or removing

d) Broker’s commissions d) Broker’s commissions unwanted buildings, unwanted buildings, e) Title feese) Title fees less any less any salvagesalvage

i) i) Grading and levelingGrading and leveling j) Paving a public j) Paving a public

street street bordering thebordering the landland

2.) Cost of acquiring building2.) Cost of acquiring building- Architecs’ fees- Architecs’ fees- Engineers’ fees- Engineers’ fees- Insurance costs incurred during construction- Insurance costs incurred during construction- Interest on manoey borrowed to finance - Interest on manoey borrowed to finance contruction contruction - Walkways to and pound the building- Walkways to and pound the building- Sales taxes- Sales taxes- Reapirs (purchase of existing building)- Reapirs (purchase of existing building)- Reconditioning - Reconditioning - Modifying for use- Modifying for use- Permits from government agencies - Permits from government agencies

3) Cost of acquiring land improvements3) Cost of acquiring land improvements- Trees and shrubs- Trees and shrubs- Fences- Fences- Outdoor lighting- Outdoor lighting- Paved parking areas- Paved parking areas

4) Cost of acquiring land machinery and equipment4) Cost of acquiring land machinery and equipment- Sales taxes- Sales taxes- Freight- Freight- Installation- Installation- Repairs (purchase of used equipment)- Repairs (purchase of used equipment)- Assembly- Assembly- Modifying for use- Modifying for use- Testing for use- Testing for use- Permits from government agencies- Permits from government agencies

RECORDING THE ACQUITITIONRECORDING THE ACQUITITION

TransactionsTransactions Journal Journal Purchase (ex: Machines)Purchase (ex: Machines) Machines xxxMachines xxx

Cash xxxCash xxx

Installment (ex: Machines)Installment (ex: Machines) Machines xxxMachines xxx

Cash xxxCash xxx

Financing Loan xxxFinancing Loan xxx

Purchase annuity (lump sum)Purchase annuity (lump sum) Machines xxxMachines xxx

Building xxxBuilding xxx

Differed interest expense xxxDiffered interest expense xxx

Cash xxxCash xxx

Annuity payable xxxAnnuity payable xxx

Interest payable xxxInterest payable xxx

Self building asset Self building asset Building xxxBuilding xxx

Material expenses xxxMaterial expenses xxx

Direct labor expense xxxDirect labor expense xxx

Overhead expenses xxxOverhead expenses xxx

Interest expense xxx Interest expense xxx

Issuance StocksIssuance Stocks Machines xxxMachines xxx

Capital Stock xxxCapital Stock xxx

Additional Paid in Capital xxxAdditional Paid in Capital xxx

Exchange with others assetsExchange with others assets Machines A xxxMachines A xxx

Accumulation depreciation- Machines B xxxAccumulation depreciation- Machines B xxx

Machines B xxxMachines B xxx

Cash xxxCash xxx

DonationDonation Machines xxxMachines xxx

Donation Capital xxxDonation Capital xxx

Kas xxxKas xxx

DEPRECIATION DEPRECIATION

Depreciation is periodic transfer of cost to expenseDepreciation is periodic transfer of cost to expense

Factors that course a decline in the ability of fixed asstFactors that course a decline in the ability of fixed asst

- Physical depreciation- Physical depreciation

- Functional depreciation- Functional depreciation

Factor involved in Depreciation ProcesFactor involved in Depreciation Proces Cost of fixed assetsCost of fixed assets Usefull lifeUsefull life Residual Value (salvage value)Residual Value (salvage value)

METHODS OF DEPRECIATIONMETHODS OF DEPRECIATION

1.1. Activity methodsActivity methods

2.2. Straight-line methodsStraight-line methods

3.3. Decreasing charge methods (accelerated)Decreasing charge methods (accelerated)

a) Sum-of-the years’-digitsa) Sum-of-the years’-digits

b) Declining – balance methodb) Declining – balance method

4.4. Special Depreciation MethodSpecial Depreciation Method

a) Group and composite methodsa) Group and composite methods

b) Hybrid or combination methodsb) Hybrid or combination methods

DATE USED TO ILLUSTRATE DEPRECIATION METHODSDATE USED TO ILLUSTRATE DEPRECIATION METHODS

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

Purchased datePurchased date January, 1, 2008January, 1, 2008

Cost of machines Cost of machines Rp. 500.000.00Rp. 500.000.00

Estimated useful lifeEstimated useful life 5 years’5 years’

Estimated Residual ValueEstimated Residual Value Rp. 50.000.000Rp. 50.000.000

Estimated life in hoursEstimated life in hours 30,000 hours30,000 hours

Hours use this yearHours use this year 4,000 hours 4,000 hours

DEPRECIATION CALCULATIONS DEPRECIATION CALCULATIONS

1) Activity Method1) Activity Method

((Cost less residual ) x Hours this yearCost less residual ) x Hours this year

Depreciation charge = ---------------------------------------------------Depreciation charge = ---------------------------------------------------

Total estimated hoursTotal estimated hours

= (Rp. 500.000.000 – Rp. 50.000) x = (Rp. 500.000.000 – Rp. 50.000) x 4,0004,000

---------------------------------------------------- ----------------------------------------------------

30,00030,000

= Rp. 60.000.000 = Rp. 60.000.000

DEPRECIATION CALCULATIONSDEPRECIATION CALCULATIONS

2) Straight-Line Method2) Straight-Line Method

Cost less residualCost less residual

Depreciation charge = ----------------------------Depreciation charge = ----------------------------

Estimated service life Estimated service life

= Rp. 500.000.000 – Rp. = Rp. 500.000.000 – Rp. 50.00050.000

--------------------------------------------------------------------------------

55

= Rp. 90.000.000= Rp. 90.000.000


3) Decreasing charge methods (accelerated)3) Decreasing charge methods (accelerated)a) Sum-of-the years’-digitsa) Sum-of-the years’-digits

YearYear Depreciation Depreciation Base Base

Remaining Remaining Life in Life in YearsYears

Deprecitaion Deprecitaion FractionFraction

Depreciation Depreciation ExpenseExpense

Book Value, end Book Value, end of Yearof Year

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

11 Rp. 450.000.000Rp. 450.000.000 55 5/155/15 Rp. 150.000.000Rp. 150.000.000 Rp. 350.000.000Rp. 350.000.000

22 450.000.000450.000.000 44 4/154/15 120.000.000120.000.000 230.000.000230.000.000

33 450.000.000450.000.000 33 3/153/15 90.000.00090.000.000 140.000.000140.000.000

44 450.000.000450.000.000 22 2/152/15 60.000.00060.000.000 80.000.00080.000.000

55 450.000.000450.000.000 11 1/151/15 30.000.00030.000.000 50.000.000 *50.000.000 *

1515 450.000.000450.000.000

Continue…Continue…

NotesNotes::

(2) = Rp. 500.000.000 – Rp. 50.000.000 = Rp. 450.000.000(2) = Rp. 500.000.000 – Rp. 50.000.000 = Rp. 450.000.000

(4) Formula to calculate denominator of fraction (4) Formula to calculate denominator of fraction

(n+1) (5 + 1)(n+1) (5 + 1)

n ------- = 5 --------- = 15n ------- = 5 --------- = 15

2 22 2

(5) = (2) x (4) (5) = (2) x (4)

* Book value 5* Book value 5thth equivalent to residual value equivalent to residual value


3)3) Decreasing charge methods (accelerated)Decreasing charge methods (accelerated)

b) Declining – balance methodb) Declining – balance method

YearYear Book Value of Book Value of Asset First of Asset First of

Year Year

Rate Rate on on

DecliniDeclining ng

BalanBalancece

Debit Debit Depreciation Depreciation

Expense Expense

Balance Balance Accumulated Accumulated Depreciaton Depreciaton

Book Value, end Book Value, end of Yearof Year

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

11 Rp. 500.000.000Rp. 500.000.000 40%40% Rp. 200.000.000Rp. 200.000.000 Rp. 200.000.000Rp. 200.000.000 Rp. 300.000.000Rp. 300.000.000

22 300.000.000300.000.000 40%40% 120.000.000120.000.000 320.000.000320.000.000 180.000.000180.000.000

33 180.000.000180.000.000 40%40% 72.000.00072.000.000 392.000.000392.000.000 108.000.000108.000.000

44 108.000.000108.000.000 40%40% 43.200.00043.200.000 435.200.000435.200.000 64.800.00064.800.000

55 64.800.00064.800.000 40%40% 14.800.000**14.800.000** 450.000.000450.000.000 50.000.00050.000.000


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

**) Limited to Rp. 14.800.000 because book value should **) Limited to Rp. 14.800.000 because book value should not be less than salvagenot be less than salvage

4.4. Special Depreciation MethodSpecial Depreciation Method(Group and composite methods)(Group and composite methods)

This method is applied for group of fixed assets This method is applied for group of fixed assets

Calculation procedures as follows Calculation procedures as follows 1. Computing the annual depreciation for each asset 1. Computing the annual depreciation for each asset

based on straight line method based on straight line method 2. The composite depreciation rate calculate by the 2. The composite depreciation rate calculate by the

total annual depreciation dividing with the sum of cost total annual depreciation dividing with the sum of cost all assetsall assets

3. Useful life of composite assets determined base on 3. Useful life of composite assets determined base on sum of depreciation cost all assets by annual sum of depreciation cost all assets by annual depreciationdepreciation

Asset No.

CostEstimated

residual valueDepreciation

BasedEstimate

d lifeAnnual Dep

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 RecordPlant Asset RecordAccount No : 13211 Account No : 13211

General Ledger Account: Office EquipmentGeneral Ledger Account: Office Equipment

Item : PrinterItem : Printer

Serial No : P.HP.102Serial No : P.HP.102

From Whom Purchased : DeComp, CoFrom Whom Purchased : DeComp, Co

Estimated life : 10 years’Estimated life : 10 years’

Estimated Residual Value : Rp. 500.000Estimated Residual Value : Rp. 500.000

Depreciation per year : Rp. 240.000Depreciation per year : Rp. 240.000

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- AssetAsset Accumulated Accumulated Depreciation Book Depreciation Book

Date Date Debit Credit Balance Debit Credit Balance Debit Credit Balance Debit Credit Balance ValueValue

04/08/07 2.900.00004/08/07 2.900.000 2.900.000 2.900.000 2.900.000 2.900.000

12/30/0712/30/07 180.000 180.000 2.720.000 180.000 180.000 2.720.000

12/30/08 12/30/08 240.000 420.000 2.480.000 240.000 420.000 2.480.000

Expenditures During Useful LifeExpenditures During Useful Life

A. Revenue expenditureA. Revenue expenditure Cost that benefit only the current period or Cost that benefit only the current period or

costs incurred for normal maintenance and costs incurred for normal maintenance and repairs repairs

It is debited to expense account It is debited to expense account Example:Example:

maintenance expense, repainting building, maintenance expense, repainting building, small repairs, etcsmall repairs, etc

B. Capital ExpenditureB. Capital Expenditure Costs of acquiring fixed asset, adding to fixed Costs of acquiring fixed asset, adding to fixed

asset, improving fixed asset, or extending a asset, improving fixed asset, or extending a fixed asset’s useful lifefixed asset’s useful life

It debited to asset account or related to It debited to asset account or related to accumulated depreciation accountaccumulated depreciation account

Types of capital expenditureTypes of capital expenditure1) additions1) additions2) betterments2) betterments3) extraordinary repairs3) extraordinary repairs

Disposal of Fixed AssetsDisposal of Fixed Assets The entry to record the disposal of fixed asset removes the cost The entry to record the disposal of fixed asset removes the cost

of the asset and it accumulated depreciation from the accountof the asset and it accumulated depreciation from the account

Ex: Assume that an item of equipment is acquired at cost of Rp. 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 25.000.000 is fully depreciated at Dec,31, the end of the preceding fiscal year. On Feb, 14 the equipment is discharged.preceding fiscal year. On Feb, 14 the equipment is discharged.

The entry to record it as follow:The entry to record it as follow:

2008Feb 14 Accumulated Depreciation 25.000.000

Equipment 25.000.000

CreditDate Description Reff. Debit

Ex: Assume that an item of equipment acquired at cost of Rp. Ex: Assume that an item of equipment acquired at cost of Rp. 6.000.000, accumulated depreciated after adjusting entries is Rp. 6.000.000, accumulated depreciated after adjusting entries is Rp. 4.750.000. At March, 24 removed from service. 4.750.000. At March, 24 removed from service.


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

2008Mar 24 Accumulated Depreciation 150.000

Equipment (to write of equipment discarged) 150.000


2008Mar 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 assetsSelling fixed assets Example, assume a company has equipment as follows:Example, assume a company has equipment as follows:

Cost of equipment Rp, 10,000.000Cost of equipment Rp, 10,000.000

Useful life 10 year’sUseful life 10 year’s

Balance of accumulated depreciation at preceding Dec,31 Rp.7.000.000 Balance of accumulated depreciation at preceding Dec,31 Rp.7.000.000

It sold on Oct, 12It sold on Oct, 12

Depreciation method straight lineDepreciation method straight line


2008Oct 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 lossA. Sold at book value for Rp. 2.250.000. No gain or loss

2008Oct 12 Cash 2.250.000

Accumulated Depreciation 1.150.000



2008Oct 12 Cash 1.000.000


Loss on disposal of fixed asset 1.250.000



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

2008Oct 12 Cash 2.800.000



Gain on disposal of fixed asset 550.000


C. Sold above book value for Rp. 1.000.000. LossRp. C. Sold above book value for Rp. 1.000.000. LossRp. 2.800.0002.800.000 Gain Rp. 550.000Gain Rp. 550.000

Exchanging Similar AssetsExchanging Similar Assets

It is old equipment traded in for new equipment It is old equipment traded in for new equipment having similar use. having similar use.

The cost recorded for the new asset can be The cost recorded for the new asset can be determined in either of two types ways:determined in either of two types ways:

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

unrecognized gain unrecognized gain or or

2. Cost of new asset = cash given (or liability 2. Cost of new asset = cash given (or liability

assumed) + Book value of old asset assumed) + Book value of old asset

ContinueContinue

IllustrationIllustration Assume the folllowing exchange:Assume the folllowing exchange:

Book value old equipment Book value old equipment Rp. 14.000.000Rp. 14.000.000

List price of new equipmentList price of new equipment Rp. 50.000.000Rp. 50.000.000

A trade in allowance of A trade in allowance of

the old equipment the old equipment Rp. 15.000.000Rp. 15.000.000

Similar equipment acquired (new) Similar equipment acquired (new)

List priceList price 5.000.0005.000.000

Trade-in allowance on old equipmentTrade-in allowance on old equipment 1.100.0001.100.000

Cash paid at June, 19Cash paid at June, 19

Cost of new equipment as followCost of new equipment as follow

Similar New equipmentSimilar New equipment

List price ……………………...............List price ……………………............... Rp. 5.000.000Rp. 5.000.000

Trade-in allowance of equipment..Trade-in allowance of equipment.. Rp. 1.100.000Rp. 1.100.000

Cash paid at June 19, date of exchangeCash paid at June 19, date of exchange Rp. 3.900.000Rp. 3.900.000

Equipment traded-in (old equipment) Equipment traded-in (old equipment)

Cost of old equipment Cost of old equipment Rp. 4.000.000Rp. 4.000.000

Acc. Dep. at date of exchangeAcc. Dep. at date of exchange Rp 3.200.000Rp 3.200.000

Book value at June 19, date of exchange Rp 800.000Book value at June 19, date of exchange Rp 800.000

Recorded cost of new equipmentRecorded cost of new equipment

a. Method One:a. Method One:List priceList price Rp. 5.000.000Rp. 5.000.000

Trade-in allowance on old equipmentTrade-in allowance on old equipment Rp. 1.100.000Rp. 1.100.000

Book Value of old equipmentBook Value of old equipment Rp. 800.000Rp. 800.000

Unrecognized gain on exchangeUnrecognized gain on exchange ( Rp, 300.000( Rp, 300.000))

Cost of new equipmentCost of new equipment Rp. 4.700.000Rp. 4.700.000

b. Method Twob. Method TwoBook Value of old equipmentBook Value of old equipment Rp. 800.000Rp. 800.000

Cash paid at date exchange Cash paid at date exchange Rp. 3.900.000Rp. 3.900.000

Cost of new equipmentCost of new equipment Rp. 4.700.000Rp. 4.700.000

Journal entry to record new equipmentJournal entry to record new equipment

2008June 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)Exchanging Similar Assets (Losses)

To illustrate as followsTo illustrate as followsSimilar New equipmentSimilar New equipment

List priceList price Rp. 10.000.000Rp. 10.000.000


Cash paid at Sept, date of exchangeCash paid at Sept, date of exchange Rp. 8.000.000Rp. 8.000.000

Equipment traded-in (old equipment)Equipment traded-in (old equipment)

Cost of old equipmentCost of old equipment Rp. 7.000.000Rp. 7.000.000

Acc. Dep at date of exchangeAcc. Dep at date of exchange Rp 4.600.000Rp 4.600.000

Book value at Sept date of exchange Book value at Sept date of exchange Rp 2.400.000Rp 2.400.000


Loss on exchangeLoss on exchange Rp. 400.000Rp. 400.000

2008Sept. 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, COLIST OF PROPERTY, PLANT, AND EQUIPMENT END OF YEARS' ENDED 2008

(in rupias)

No. Code Type of AssetsDate

acquired Cost Acc.Dep.2007Depreciation

2008 Acc.Dep.2008Book Value

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 Office Furniture 07/02/2004 160.000.000 84.000.000 42.000.000 126.000.000 34.000.000

3 1333 Office 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 Office 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

Documents

FIXED ASSETS (PROPERTY, PLANT, AND EQUIPMENT )