Classification of assets

Tangible fixed assets

Tangible fixed assets (TFAs) are defined in

FRS 15 as:

Assets that have physical substance and are Held for use in the production or supply of goods or services , for rental to others , or for administrative purposes on a continuing basis in the reporting entity activities .

Classification of tangible fixed asset

in the UK the formats for financial reporting contain three groups for TFAs :

Land and buildings plant and machinery fixtures, fittings, tools and equipment

IAS 16 property, plant, and equipment

Recognition

Items of property, plant, and equipment should be recognised as assets when it is probable that:

it is probable that the future economic benefits associated with the asset will flow to the entity .

the cost of the asset can be measured reliably .

IAS 16 recognises that parts of some items of property, plant, and equipment may require replacement at regular intervals. The carrying amount of an item of property, plant, and equipment will include the cost of replacing the part of such an item when that cost is incurred if the recognition criteria (future benefits and measurement reliability) are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of IAS 16 .

Example:

an aircraft may require regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant, and equipment as a replacement if the recognition criteria are satisfied. If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed.

Disclosure

For each class of property, plant, and equipment, disclose :

basis for measuring carrying amount . depreciation method(s) used . useful lives or depreciation rates . gross carrying amount and accumulated

depreciation and impairment losses .

reconciliation of the carrying amount at the beginning and the end of the period showing:

• additions • disposals • acquisitions through business combinations• revaluation increases or decreases • impairment losses

• reversals of impairment losses .• depreciation .• net foreign exchange differences on translation• other movements . restrictions on title . expenditures to construct property, plant, and

equipment during the period .

contractual commitments to acquire property, plant, and equipment

compensation from third parties for items of property, plant, and equipment that were impaired, lost or given up that is included in profit or loss .

If property, plant, and equipment is stated at revalued amounts, certain additional disclosures are required:

the effective date of the revaluation whether an independent valuer was

involved . the methods and significant assumptions

used in estimating fair values

the extent to which fair values were determined directly by reference to observable prices in an active market or recent market transactions on arm's length terms or were estimated using other valuation techniques .

for each revalued class of property, the carrying amount that would have been recognised had the assets been carried under the cost model

the revaluation surplus, including changes during the period and any restrictions on the distribution of the balance to shareholders .

Intangible assets

Intangible assets are defined as :

Non-financial fixed assets that do not have a physical substance but are identifiable and are controlled by the entity through custody or legal rights .

IAS 38 Intangible assets

Under the new standard ias 38 ( applied from 31 march 2004) an Intangible asset will be initially recognized at cost if the following three conditions are met :

IAS 38 Intangible assets

1. The asset meet the definition of an Intangible asset- identified and controlled by the business .

2. its probable that future economic benefits will flow to the business .

3. the cost of the asset can be measured reliably .

Intangible assets and initial carrying value

In determining the value at initial recognition we need to consider three cases :

1. an intangible asset purchased separately this asset should be capitalised at its cost .

2. an internally developed intangible fixes asset may be captialised only if it has a readily ascertainable market value

In this case the entity has the choice whether to capitalised the asset or not .

3. Intangible fixed asset acquired as part of purchase of a business .

Intangible asset should be capitalised separately from goodwill, if its value can measured reliably on initial recognition .

In this case the intangible asset should initially recorded at its fear value .

Note:unless the asset has readly ascertainable market value , the fear value should be limited to an amount that doesnt create negative goodwill arising on acquisition .