Fixed Asset Accounting
The Comprehensive Guide
Steven M. Bragg
Table of Contents
Chapter 1 - Introduction to Fixed Assets 2
What are Fixed Assets? 2
The “Fixed Asset” Designation 3
Fixed Asset Classifications 4
Applicable Accounting Frameworks 6
Accounting for Fixed Assets 6
Accounting for Intangible Assets 7
Accounting for Not-for-Profit Fixed Assets 7
Fixed Asset Disclosures 7
Fixed Asset Controls 8
Fixed Asset Policies and Procedures 8
Fixed Asset Record Keeping 8
Fixed Asset Auditing 9
Fixed Asset Measurements 9
Chapter 2 - Capital Budgeting Analysis 12
Overview of Capital Budgeting 12
Bottleneck Analysis 13
Net Present Value Analysis 14
The Payback Method 16
Capital Budget Proposal Analysis 17
The Outsourcing Decision 18
The Capital Budgeting Application Form 19
The Post Installation Review 21
The Lease or Buy Decision 22
Chapter 3 - Initial Fixed Asset Recognition 27
The Capitalization Limit 27
The Base Unit 28
GAAP: The Initial Measurement of a Fixed Asset 30
GAAP: The Measurement of Assets Acquired in a Business Combination 31
GAAP: The Measurement of Assets Acquired in a Capital Lease 31
GAAP: Non-Monetary Exchanges 32
IFRS: Initial Inclusions in a Fixed Asset 36
IFRS: Initial Cost of a Fixed Asset 38
IFRS: The Measurement of Assets Acquired in a Business Combination 39
IFRS: The Measurement of Assets Acquired in a Capital Lease 39
IFRS: Non-Monetary Exchanges 41
Chapter 4 - Interest Capitalization 45
Why and When Do We Capitalize Interest? 45
Assets for Which You Must Capitalize Interest 46
Assets for Which You Do Not Capitalize Interest 46
The Interest Capitalization Period 47
The Capitalization Rate 48
Calculating Interest Capitalization 49
Derecognizing Capitalized Interest 51
Interest Capitalization Under IFRS 51
Chapter 5 - Asset Retirement Obligations 55
The Liability for an ARO 55
The Initial Measurement of an ARO 56
Subsequent Measurement of an ARO 57
Settlement of an ARO 58
AROs Under IFRS 59
Chapter 6 - Depreciation and Amortization 63
The Purpose of Depreciation 63
Depreciation Concepts 64
Accelerated Depreciation 65
Straight-Line Method 66
Sum-of-the-Years’ Digits Method 66
Double-Declining Balance Method 67
Depletion Method 68
Units of Production Method 70
MACRS Depreciation 71
The Depreciation of Land 72
The Depreciation of Land Improvements 72
Depreciation Accounting Entries 73
Accumulated Depreciation 74
Depreciation Under IFRS 75
Other Depreciation Topics 75
Chapter 7 - Subsequent Fixed Asset Measurement 79
The Capitalization of Additional Expenditures 79
Asset Revaluation for Tangible Assets 81
Asset Revaluation for Intangible Assets 84
Chapter 8 - Fixed Asset Impairment 88
Asset Impairment Under GAAP 88
Asset Impairment Under IFRS 91
Chapter 9 - Fixed Asset Disposal 106
Asset Derecognition 106
The Held-for-Sale Classification 106
Reclassification from Held for Sale 109
Discontinued Operations 111
Abandoned Assets 112
Idle Assets 112
Asset Disposal Accounting 112
Asset Disposal Under IFRS 114
Chapter 10 - Fixed Asset Disclosures 117
GAAP Disclosures 117
IFRS Disclosures 121
Chapter 11 - Not-for-Profit Fixed Asset Accounting 133
Initial Recognition of Fixed Assets 133
Restrictions on Contributed Assets 134
Valuation of Contributed Assets 135
Valuation of Contributed Services 135
Valuation of Art and Similar Items 136
Depreciation of Fixed Assets 136
Recordation of Fixed Assets 137
Fixed Asset Controls in a Not-for-Profit Entity 137
Chapter 12 - Fixed Asset Record Keeping 141
Fixed Asset Accounts 141
Construction Project Record Keeping 144
Building Record Keeping 144
Equipment Record Keeping 146
Land Record Keeping 147
Lease Record Keeping 148
Document Retention 150
Fixed Asset Reports 150
Chapter 13 - Fixed Asset Controls 159
Controls for Fixed Asset Acquisition 159
Controls for Fixed Asset Construction 161
Controls for Fixed Asset Theft 161
Controls for Fixed Asset Valuation 163
Controls for Fixed Asset Depreciation 163
Controls for Fixed Asset Disposal 164
The Control of Laptop Computers 165
Chapter 14 - Fixed Asset Policies and Procedures 168
Capital Budgeting Policies and Procedures 168
Asset Recognition Procedures 171
Asset Revaluation Policies and Procedures 173
Asset Exchange Policies and Procedures 174
Depreciation Policies and Procedures 175
Impairment Policies and Procedures 177
Asset Retirement Obligation Policies and Procedures 177
Intangible Asset Policies and Procedures 178
Transfer Policies 179
Disposal Policies and Procedures 179
Record Keeping Policies 180
Tracking Policies and Procedures 181
The Fixed Asset Manual 182
Chapter 15 - Fixed Asset Tracking 186
Tag Tracking 186
Bar Code Tracking 187
RFID Tracking – Active Transmission 187
RFID Tracking –Passive Transmission 188
Wireless Monitoring 188
Chapter 16 - Fixed Asset Measurements 192
Sales to Fixed Assets Ratio 192
Repairs and Maintenance Expense to Fixed Assets Ratio 193
Accumulated Depreciation to Fixed Assets Ratio 194
Cash Flow to Fixed Asset Requirements Ratio 195
Return on Assets Employed 196
Return on Operating Assets 197
Bottleneck Utilization 198
Unscheduled Machine Downtime 199
Chapter 17 - Fixed Asset Auditing 203
Fixed Asset Audit Objectives 203
Fixed Asset Audit Procedures 203
Auditor Requests 206
Appendix - Journal Entries 211
Glossary 215
