Abstract
We saw in Chapter 1 (Note 5) that assets can be defined as ‘a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise’. Assets are thus a stock of benefits, and over time the benefits usually get used up. Chapter 6 deals with the specific characteristics of assets, and looks particularly at fixed assets and the measurement problems which result from using up the stock of benefits which they represent.
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Notes and References
It has proved difficult in recent years to achieve a satisfactory accounting treatment of some intangible assets, notably research and development, goodwill and brands. Recognition of these items as assets is difficult because of the relative uncertainty often associated with their future benefit to the firm. Additional problems of measurement occur where the items are internally generated and are not acquired by an external transaction.
In practice whether a lease is classified as a fixed asset will depend on the nature of the terms of the lease. The Accounting Standards Committee have dealt with the issue in SSAP 21, ‘Accounting for Leases and Hire Purchase Contracts’.
‘It has ... become increasingly common for enterprises to revalue their fixed assets, in particular freehold and leasehold property and to incorporate these revalued assets in their financial statements’ (SSAP 12, ‘Accounting for Depreciation’, 1987).
See Notes 12 and 23 to the annual statements of Marks and Spencer in Appendix B for an example of a revaluation reserve.
SSAP 12 ‘Accounting for Depreciation’ states that where the fixed asset’s net book value exceeds its ‘recoverable amount’, the asset should be written down to this estimated recoverable amount. It defines ‘recoverable amount’ as ‘the greater of the net realisable value of the asset and where appropriate the amount recoverable from its future use’.
SSAP 12, ‘Accounting for Depreciation’ defines depreciation as: ‘The measure of the wearing out, consumption or other reduction in the useful economic life of a fixed asset, whether arising from use, effluxion of time or obsolescence through technological or market changes’.
When the balance sheet value of a fixed asset is increased by revaluation, the result will be an increase in the amount to be depreciated over the remainder of its useful life.
Accumulated depreciation is the total amount of depreciation expense which has already been allocated in respect of an asset; the difference between the original cost of the asset and accumulated depreciation is termed the assets Net book value.
SSAP 12, ‘Accounting for Depreciation’.
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© 1991 Arthur Hindmarch and Mary Simpson
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Hindmarch, A., Simpson, M. (1991). Fixed Assets. In: Financial Accounting: An Introduction. Palgrave, London. https://doi.org/10.1007/978-1-349-21765-6_6
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