Basic Theories of Fixed Asset Accounting in Enterprises

CHAPTER 1: BASIC THEORIES OF FIXED ASSET ACCOUNTING IN ENTERPRISES

1.1 Some basic issues about fixed assets in enterprises

1.1.1 Concept of fixed assets

Any business that wants to conduct production and business activities must have a certain amount of resources to invest in facilities to meet its production and business requirements. In particular, fixed assets are one of the extremely important factors that determine the production and business capacity and scale of the business.

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According to International Accounting Standards (IAS 16 and IAS 38): Factories, machinery, equipment and intangible assets are recognized as fixed assets when simultaneously satisfying the following conditions: First, it is certain to obtain future economic benefits from the use of such assets. Second, the value of the assets must be determined reliably.

According to American accounting: Fixed assets are assets with a usage period of more than one year, invested to serve production and business activities to create the main source of income for the enterprise [ 11, p.174].

According to French accounting : Real assets (IAs) are all types of assets that a business owns, manages and uses for a long period of time (at least more than 1 year). IAs include three types: tangible IAs, intangible IAs and financial IAs [11, p.176]

According to Vietnamese Accounting Standards (VAS 03), tangible fixed assets : Are assets with physical form held by an enterprise for use in production and business activities in accordance with the standards for recording tangible fixed assets.

According to Vietnamese Accounting Standards (VAS 04), intangible fixed assets: Are assets that do not have a physical form but have a determined value and are held by the enterprise, used in production, business, service provision or leased to other entities in accordance with the standards for recording intangible fixed assets.

According to Circular 45/2013/TT-BTC dated March 24, 2013 , accordingly:

Tangible fixed assets are the main means of labor with physical form that satisfy the standards of tangible fixed assets, participating in many business cycles but still maintaining the original physical form such as houses, architectural structures, machinery, equipment, means of transport...

Intangible fixed assets: are assets without physical form, representing an amount of invested value that meets the standards of intangible fixed assets, participating in many business cycles, such as some costs directly related to land use; costs of issuance rights, inventions, patents, copyrights...

Financial leased fixed assets: are fixed assets that the enterprise leases from a financial leasing company. At the end of the lease term, the lessee has the right to choose to buy back the leased assets or continue leasing according to the terms agreed in the financial leasing contract. The total rental amount for an asset specified in the financial leasing contract must be at least equivalent to the value of that asset at the time of signing the contract.

Similar fixed assets: are fixed assets with similar uses in the same business field and equivalent value.

1.1.2 Characteristics of fixed assets

Fixed assets in an enterprise have the following characteristics:

Directly or indirectly involved in many production and business cycles. Therefore, businesses need to have measures to preserve, repair and upgrade fixed assets to exploit the efficiency of asset use.

Tangible fixed assets, when participating in production and business, although depreciating in value, still retain their original physical form until damaged and must be discarded. Enterprises need to choose the appropriate fixed asset depreciation method to most closely assess the level of wear and tear to recover the invested value of fixed assets.

- When participating in the production and business process, fixed assets gradually wear out and their value is partially transferred into the cost of the product.

made in the form of depreciation. Enterprises need to perform well the management, use and organization of fixed asset accounting to improve the efficiency of production and business activities of the enterprise.

1.1.3 Classification of fixed assets

Fixed assets in enterprises are classified according to many different criteria such as by form of expression, by ownership, by usage status... Each such classification will meet certain management requirements. Specifically:

1.1.3.1 Classification by form of expression and technical characteristics

According to this classification method, fixed assets in an enterprise are divided into two types: tangible fixed assets and intangible fixed assets.

Tangible fixed assets:

According to Vietnamese accounting standards (VAS 03), assets recorded as tangible fixed assets must simultaneously satisfy all four of the following recognition criteria:

(a) It is certain that future economic benefits will flow from the use of the asset;

(b) The cost of the asset must be determined reliably;

(d) Meets the value standards according to current regulations.

According to the current regulations of Circular 45/2013/TT-BTC dated March 24, 2013, the standard for the value of fixed assets is from VND 30,000,000 (Thirty million VND) or more. According to the technical characteristics of the assets, tangible fixed assets in enterprises are classified into:

Buildings and structures: are fixed assets of an enterprise formed after the construction process such as offices, warehouses, fences, water towers, yards, decorative works for houses, roads, bridges, railways, airport runways, piers, wharves, and slipways.

Machinery and equipment: are all types of machinery and equipment used in the business activities of enterprises such as specialized machinery, working equipment, drilling rigs in the oil and gas sector, cranes, technological lines, and individual machines.

Means of transport, transmission equipment: are types of means of transport including

means of transport by rail, water, road, air, pipelines and transmission equipment such as information systems, electrical systems, water pipes, conveyor belts.

Management equipment and tools: are equipment and tools used in the management of business activities of enterprises such as computers for management, electronic equipment, measuring equipment and tools, quality control, dehumidifiers, vacuum cleaners, and termite control.

Perennial gardens, working and/or productive animals: are perennial gardens such as coffee gardens, tea gardens, rubber gardens, fruit gardens, lawns, green carpets, etc.; working and/or productive animals such as elephants, horses, buffaloes, cows, etc.

Other types of fixed assets: are all other fixed assets not listed in the five types above such as paintings, works of art...

Intangible fixed assets:

According to Vietnamese accounting standards (VAS 04), an intangible asset is recognized as an intangible fixed asset if and only if it satisfies both the definition of an intangible fixed asset and the four recognition criteria of a tangible fixed asset.

According to the current regulations of Circular 45/2013/TT-BTC dated March 24, 2013, all actual expenses incurred by enterprises that simultaneously satisfy the criteria for recording fixed assets without forming tangible fixed assets are recorded as intangible fixed assets. According to the nature of assets, intangible fixed assets include:

Land use rights with a term: Reflects the value of intangible fixed assets as all actual costs incurred directly related to the land used, including: money spent to obtain land use rights, compensation costs, site clearance...

Issuance rights: Reflects the value of intangible fixed assets as the total actual costs the enterprise has spent to obtain the issuance rights.

Copyrights, patents: Reflects the value of intangible assets as actual costs incurred to obtain copyrights and patents.

Brand name: Reflects the value of intangible assets which are the actual costs related to purchasing the brand name.

Computer software: Reflects the value of intangible fixed assets as the total cost

The reality is that businesses spend money on computer software.

Licenses and franchises: Reflecting the value of intangible fixed assets are expenses for businesses to obtain licenses and franchises to perform that work such as mining licenses, licenses to produce new products...

Other intangible fixed assets: include other types of intangible fixed assets not specified above such as copyright, contract usage rights...

Classifying fixed assets according to this criterion helps managers have an overall view of the enterprise's investment structure and that is an important basis for setting out a construction direction or making an investment decision suitable to the actual situation of the enterprise, helping the enterprise have measures to manage and calculate depreciation scientifically for each type of asset.

1.1.3.2 Classification by purpose of use

According to this classification criterion, fixed assets are classified into:

Fixed assets used for business purposes: are fixed assets directly involved in the production and business activities of the enterprise such as: Houses, structures; Machinery and equipment, Means of transport...

Fixed assets used for non-business purposes include fixed assets used for welfare, career, security, national defense activities, fixed assets kept or stored for the state and other businesses.

This classification helps managers evaluate the efficiency of fixed asset usage of each activity, thereby having a depreciation plan suitable for each type of asset.

1.1.3.3 Classification by ownership

According to this classification, all fixed assets of an enterprise are divided into owned fixed assets and leased fixed assets.

Fixed assets under ownership: are fixed assets built, purchased and formed from capital provided by the budget or higher level, borrowed capital, joint venture capital, enterprise funds and donated fixed assets. These are fixed assets owned by the enterprise and are reflected on the Balance Sheet.

business accounting

Leased fixed assets: are fixed assets that businesses rent from outside to serve their production and business needs. Depending on the terms of the lease contract, leased fixed assets are divided into financial leased fixed assets and operating leased fixed assets.

+ Financial leased fixed assets are fixed assets that enterprises lease from financial leasing companies. Financial leased fixed assets are the transfer of most of the benefits and risks to the lessee, the lease period accounts for most of the useful life. Financial leased fixed assets must satisfy one of the following five conditions:

Firstly: the ownership of the fixed assets that the financial leasing company leases to the enterprise will be transferred to the enterprise at the end of the lease term.

Second: In the contract, the lessee is allowed to choose to purchase the leased fixed assets at a price lower than the fair value at the end of the lease term.

Third: The lease term of the asset must be for at least the majority of the actual useful life of the asset even if there is no transfer of ownership.

Fourth: At the time of leasing fixed assets, the total cost of leasing fixed assets must account for at least 60% of the value of the leased fixed assets.

Fifth: Financial leased fixed assets are of a specialized type that only the lessee can use without requiring major changes or repairs.

+ Operating leased fixed assets: are leased fixed assets that do not satisfy any terms of a financial lease contract. The lessee may only manage and use the assets during the contract term and must return them to the lessor at the end of the contract.

This classification helps businesses know which fixed assets they currently have and which fixed assets they have to rent, so they can use and purchase more to serve production and business activities.

Classification by source of formation

According to this classification method, fixed assets are divided into:

Fixed assets formed from owner's capital: Are fixed assets formed from the owner's investment capital or formed from the business results of the enterprise.

career

Fixed assets formed from payable debts: Are fixed assets formed from borrowing from outside.

Donated or sponsored fixed assets: Are fixed assets formed by being donated or receiving sponsorship from outside.

Classify fixed assets according to their source of formation, providing information on the capital structure of fixed assets. From there, measures can be taken to monitor, manage and use fixed assets most effectively.

1.1.4 Management requirements and accounting tasks of fixed assets in enterprises

1.1.4.1 Fixed Asset Management Requirements

Fixed assets are the important technical material basis, deciding the existence of the enterprise in a fiercely competitive environment. Therefore, fixed assets need to be strictly managed to promote the highest efficiency in the process of use. Fixed asset management needs to ensure the requirements in all three stages: Investment, use and liquidation of fixed assets.

 For the fixed asset investment phase: Based on the business characteristics as well as the financial situation and management needs, the enterprise determines the fixed asset investment portfolio to be suitable and economically efficient. For each different fixed asset, the enterprise can choose a different form of investment. Depending on each type of investment, the enterprise searches for a suitable supplier based on criteria of procedures, technical level, price, reputation, quality, etc. to obtain the most suitable fixed assets. Organize acceptance, handover, put fixed assets into use and determine the original price of fixed assets.

 In the process of using fixed assets: requires businesses to manage assets in both physical and value terms.

+ In terms of physical assets, it is shown in 2 aspects: quantity - the fixed asset management department must ensure adequate capacity to meet the production and business requirements of the enterprise; quality - the preservation of fixed assets must ensure that they are not damaged or lost, reducing the value of the assets. To do that, each enterprise must:

Enterprises need to develop regulations for preserving and using fixed assets in a reasonable manner, suitable to the operational characteristics of their unit; at the same time, each enterprise should also develop technical and economic norms for each type of fixed assets currently in use.

+ Managing fixed assets in terms of value is reflected in the fact that the enterprise has a method to accurately determine the value of the asset. Not only correctly and fully calculating the costs related to the formation of the asset, the enterprise must also have measures to determine the level of depreciation of the asset and allocate that depreciation cost to production costs in a reasonable manner. Repairing, dismantling, installing, improving or re-evaluating assets must be based on certain principles. Based on the management of fixed asset value, the enterprise can develop a plan to increase or decrease fixed assets according to each type of fixed asset to suit the operational requirements of the enterprise.

 For the fixed asset liquidation phase: Enterprises need to identify the list of assets that have been fully depreciated, are technically obsolete or cannot be used, thereby developing a liquidation plan. For fixed assets that have been fully depreciated but can still be used, enterprises need to consider the benefits gained from continuing to use the assets and the operating costs of the assets. For assets that cannot be used or assets that are not used economically effectively, enterprises choose a liquidation plan that is appropriate to the characteristics of the assets and management requirements.

1.1.4.2 Fixed asset accounting tasks in enterprises

To meet the requirements of fixed asset management, fixed asset accountants must perform the following tasks well:

Number each fixed asset in a scientific, reasonable and consistent manner throughout the enterprise.

Open fixed asset books and cards to track the fluctuations of each asset according to each using department to provide information for inspection, comparison and implementation of material responsibilities.

Develop and evaluate investment plans and renovation of fixed assets (rent or purchase, domestic purchase or import, operating lease or financial lease...) to

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