Abstract
The broad principles for accounting for fixed assets are generally well understood in the UK. The cost of fixed assets should be capitalised when they are acquired and subsequently depreciated through the profit and loss account over their working lives, and written down if at any time the carrying value is seen not to be fully recoverable. When a fixed asset is sold or scrapped, the difference between the written down value and any proceeds is recorded as the gain or loss on disposal. But there are many complications in applying these simple principles in practice; When should a fixed asset initially be recognised? How should its cost be measured? How should it be depreciated? When should it be regarded as not fully recoverable? Worse, a new and confusing dimension is added to these and other problems if management decides to revalue the asset rather than continuing to carry it on the basis of its historical cost.
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References
ED 51, Accounting for fixed assets and revaluations, ASC, May 1990 and ED 52, Accounting for intangible fixed assets, ASC, May 1990.
CA 85, s. 262(1).
ED 51, para. 57.
IAS 16, Accounting for Property, Plant and Equipment, IASC, March 1982, para. 6.
ED 52, para. 37.
ED 51, para 66.
The recognition of items in financial statements, ASB, July 1992, para. 4.
The elements of financial statements, ASB, July 1992, para. 7.
Ibid., para. 38.
SSAP 22 — Accounting for goodwill — ASC, Revised July 1989, para. 27.
CA 85, Sch 4A, para. 9(2).
The recognition of items in financial statements, para. 6.
Barwise, Higson, Likierman and Marsh, Accounting for Brands, 1989, p. 8.
CA 85, Sch. 4, para. 17.
ED 51, para. 67.
CA 85, s 262(1).
Ibid., Sch 4., para. 26(1).
SSAP 4, Accounting for government grants, ASC, Revised July 1990, para. 25.
CA 85, Sch. 4, paras. 26(2) and 26(3).
ED 51, para. 11.
SSAP 9, Stocks and long-term contracts, para. 19.
Ibid., Appendix 1, paras 4–7.
ED 51, para. 69.
Ibid., para. 12.
Ibid., para. 68.
Ibid., para. 14.
SSAP 9, Appendix 1, para. 1.
ED 51, para. 76.
Ibid., para. 19.
SSAP 12, Accounting for depreciation, ASC, revised January 1987, para. 10.
This view was to an extent supported by the definition in the original version of SSAP 12, at para. 15 which ran (in part): ‘depreciation is the measure of the wearing out, consumption or other loss of value of a fixed asset…’
ARB 43, para. 7. Note that this consolidates the earlier ARB 33 that dates from 1947, but has not been superseded.
FRAG 2/92, ICAEW, 1992, para. 16.
L.C.L. Skerratt and D.J.Tonkin (eds.), ICAEW, Financial Reporting 1991–1992, A Survey of UK Published Accounts, p. 209.
ED 37, para. 25, stated, ‘In certain very restricted instances it may not be appropriate to charge depreciation in respect of what would normally be a depreciable asset. This would arise only where the asset is maintained to such a standard that: a) the estimated residual value is equal to or greater than its net book amount, or b) its estimated useful economic life is either infinite or such that any depreciation charge would be insignificant.’
Technical Release 648, Statement on the publication of SSAP 12 (Revised) Accounting for depreciation, para. 10.
FRRP PN7, 4 February 1992.
FRAG 2/92, para. 47.
ED 52, para. 41.
CA 85, Sch. 4, para. 18.
Ibid.
Ibid., para. 32.
ASC, A review of SSAP 12 — Accounting for depreciation, paras. 3.1–3.4, 6.1–6.2 & 4.1–4.6.
SSAP 12, para. 15.
Ibid., para. 16.
Ibid., para. 17.
Ibid., paras. 19 and 20.
Ibid., para. 21.
Ibid., para. 22.
Ibid., paras. 23 and 24.
ED 37, Accounting for depreciation, ASC, March 1985, para. 20.
Original SSAP 12, para. 4.
Ibid.
SSAP 12, para. 15.
See the SORP on Accounting for oil and gas exploration and development activities, Oil Industry Accounting Committee, December 1987, paras. 62–65 and 84–87.
SSAP 12, para. 21.
SSAP 2, Disclosure of accounting policies, para. 13.
Ibid., para. 16.
SSAP 6, paras. 31 and 39.
CA 85, Sch. 4, para. 25.
SSAP 12, para. 20.
CA 85, Sch. 4, para. 19(2).
Ibid., para. 19(3).
Ibid., paras. 19(1) and (2). The use of the word ‘shown’ makes the wording ambiguous, but it is generally considered to mean that the provisions must be made through the profit and loss account and either disclosed on the face of the profit and loss account or in the notes to the accounts.
Ibid., para. 19(1).
SSAP 12, para. 19.
Ibid., para. 20.
Ibid., para. 13.
SORP on Accounting for oil and gas exploration and development activities, para. 66.
Ibid., para. 67.
SSAP 6, Extraordinary items and prior year adjustments, para. 11.
L.C.L. Skerratt and D.J.Tonkin (eds.), ICAEW, Financial Reporting 1985–1986, A Survey of UK Published Accounts, p. 148.
L.C.L. Skerratt and D.J.Tonkin (eds.), ICAEW, Financial Reporting 1987–1988, A Survey of UK Published Accounts, p. 182.
L.C.L. Skerratt and D.J.Tonkin (eds.), ICAEW, Financial Reporting 1991–1992, A Survey of UK Published Accounts, p. 206.
SSAP 12, para. 5.
ED 51, para. 27.
Ibid., para. 30.
Ibid., para. 81.
Ibid., para. 53.
SSAP 20, para. 26.
ED 51, para. 84.
Ibid., para. 85.
Ibid., para. 86.
Ibid., para. 109.
Ibid., para. 111.
CA 85, Sch. 4, para. 31(2).
Ibid., para. 31(1).
Ibid., para. 31(3).
Accounting for the effects of changing prices: a Handbook, paras. A1.3 and A1.4.
ED 51, para. 82.
Ibid., paras. 87 and 88.
ED 52, para. 40.
SSAP 19, para. 11.
Accounting for the effects of changing prices: a Handbook, para. A1.35.
(S20) 2.205, Valuation of company property assets and their disclosure in directors’ reports or accounts of companies.
SAVP 1, General principles to be observed in preparing asset valuations, RICS, para. 2.6.
SAVP 2, Open market value and other bases of market valuation, RICS, para. 1.1.
Ibid., para. 2.1.
Ibid., para. 2.5.
See SAVP 12, Valuation of land and buildings fully equipped as an operational entity and valued having regard to trading potential, RICS, for further guidance on this subject.
SSAP 22, para. 15.
These are items normally considered part of the building, e.g. wiring, gas mains, boilers and central heating systems, air conditioning, etc.
SAVP 12, para. 8.
See, for example, C. A. Westwick, Property Valuations and Accounts, ICAEW, 1980, p. 47.
SAVP 2, para. 3.3.
This is the basis of valuation suggested in Accounting for the effects of changing prices: a Handbook, para. A1.43. Other non-specific land and buildings should be valued taking account of the existing use, but the straightforward open market value, i.e. taking account of any alternative use, is appropriate for such assets.
See Accounting for the effects of changing prices: a Handbook, paras. A1.37 and A1.38 and SAVP 3, The depreciated replacement cost basis of valuation, RICS, for a further discussion of depreciated replacement cost.
SAVP 3, para. 2.1(c).
Ibid., para. 4.2.
Ibid., para. 5.
C.A. Westwick, op. cit., pp. 57–58.
CA 85, Sch. 4, para. 34(1).
Ibid., para. 34(3). Until amended by the CA 89, this read ‘… for the purpose of the accounting policies adopted by the company,’ which was capable of wider interpretation.
Ibid., paras. 34(3)(a).
Ibid., paras. 34(3A) and (3B).
Ibid., paras. 32(1) and 42(2).
ED 51, para. 94.
SSAP 12, para. 13.
Ibid., para. 16.
CA 85, Sch. 4, paras. 32(1) and (3).
C. Nobes, Depreciation Problems in the Context of Historic Cost Accounting, p. 26.
CA 85, Sch. 4, para. 3(7)(a).
ED 51, para. 96.
FRED 1, The structure of financial statements — Reporting of financial performance, ASB, December 1991, para. 18.
ED 51, para. 80.
ED 16, Supplement to ‘Extraordinary items and prior year adjustments’, ASC, September 1975, para. 14.
ASC Discussion Paper, A review of SSAP 6 — Extraordinary items and prior year adjustments, para. 2.11.
ASC Discussion Paper, A review of SSAP 12 — Accounting for depreciation, paras. 7.2 and 7.3.
ED 36, Extraordinary items and prior year adjustments, ASC, January 1985, para. 26.
FRED 1, para. 18.
CA 85, Sch. 4, para. 34(1).
SSAP 19, para. 13.
ED 16, Supplement to “Extraordinary items and prior year adjustments”, ASC, September 1975, para. 13.
A review of SSAP 12 — Accounting for depreciation, ASC, December 1982.
ED 51, para. 79.
Ibid., para. 59.
Ibid., para. 79.
CA 85, Sch. 4, para. 32.
ED 51, para. 93.
Ibid., para. 95.
CA 85, Sch. 4, para. 34(3).
Ibid., s 263(3).
Ibid., s 275(1).
Ibid., s 275(2).
This inference can be drawn from the wording of s 275(1), which reads ‘a provision … other than one in respect of a diminution in value of a fixed asset appearing on a revaluation of all the fixed assets …’, which suggests that diminutions identified by revaluations constitute provisions as defined by para. 88 of Sch 4.
Ibid.
See D. Foster, Accounting Requirements, Butterworths Company Law Guide, Second edition, 1990, p. 340, para. 12.88, where this interpretation is given.
CA 85, s 275(5).
Ibid., s 275(6).
Relevant accounts’ are defined in ibid., ss 270–273.
CA 85, Sch. 7, para. 1(1).
Interpretation Act 1978, Sch. 1.
CA 85, Sch. 7, para. 1(2).
Ibid., Sch. 4, para. 8, balance sheet formats.
Allied-Lyons PLC, Report & Accounts 1992, p. 43.
CA 85, Sch. 4, para. 8, profit and loss account formats.
Ibid., note (17) on the profit and loss account formats.
Ibid., paras. 19(1) and 19(2).
SSAP 12, paras. 25(a) and (b).
ED 52, para. 42(b).
CA 85, Sch. 4, paras. 42(1)(a) and 42(2)
Ibid., para. 42(1)(b).
Ibid., para. 42(3).
SSAP 12, para. 25(c).
Ibid., para. 25(d).
Ibid., para. 26.
CA 85, Sch. 4, para. 44.
Ibid., para. 83(1).
ED 51, paras. 106 and 107.
ED 52, para. 42(a).
CA 85, Sch. 4, paras. 33(1) and (2).
Ibid., para. 33(3).
Ibid., para. 33(4).
Ibid., para. 43(a).
Ibid., para. 33(2).
Ibid., para. 43(b).
SSAP 12, para. 26.
CA 85, Sch. 4, para. 34(2).
Ibid., para. 34(4).
ED 51, paras. 101 to 105.
SFAS 34, Capitalization of Interest Cost.
SFAS 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects.
ARB No. 43, Restatement and Revision of Accounting Research Bulletins, Chapter 9 and ARB No. 44 (Revised), Declining-balance Depreciation.
These include ARB 43, Chapter 9A which discusses whether assets should be depreciated more quickly to compensate for inflation and rejects the idea, and a number of statements that deal with depreciation methods approved by the Internal Revenue and the timing differences that may result, including ARB 44 (Revised), APB 1 and paragraph 20 of APB 6.
ARB 43, Chapter 9, para. 5.
APB Statement No. 4, Basic Concepts and Accounting Principles, para. 183 M-5C.
AICPA Accounting Standards Division’s Task Force on Impairment of Value, Accounting for the Inability to Fully Recover the Carrying Amounts of Long Lived Assets, para. 42.
EITF Abstract Issue No. 84–28, Impairment of Long-Lived Assets.
Accounting for the Impairment of Long-Lived Assets and Identifiable Intangibles, FASB, December 1990.
APB 6, para. 17. This continues: ‘This section is not intended to change accounting practices followed in connection with quasi-reorganisations or reorganisations. This section may not apply to foreign operations under unusual conditions such as serious inflation or currency devaluation. However, when the accounts of an enterprise with foreign operations are translated into US currency for consolidation, such write-ups normally are eliminated. Whenever appreciation has been recorded in the books, income shall be charged with depreciation computed on the written-up amounts.’
IAS 4, Depreciation Accounting, IASC, October 1976.
IAS 16, para. 41.
Ibid., para. 44.
Ibid., para. 48.
Ibid., para. 47.
E43, Property, Plant and Equipment, IASC, May 1992, paras. 27 and 28.
Ibid., para. 34.
Ibid., para. 28.
Ibid., para. 58.
Ibid., paras. 37 and 38.
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© 1992 Ernst & Young
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Davies, M., Paterson, R., Wilson, A. (1992). Fixed assets and depreciation. In: UK Gaap. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-12998-0_6
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