1. Average Net Funds employed = Stock/inventry value + Ave. net Fixed Assets (depreciated value as applicable)
2. Return on Capital employed = Gross Margin/ANFE (annualised)
3. Net margin = GM - PBIT
4. EVA = Net Margin - interest on ANFE
Whenever you buy fixed assets, you have to record them in the Fixed Asset Register (FAR).
Even small items like white board or table in the boardroom are also fixed assets. Now by chance after three months of purchase the table starts creaking because of inferior quality of wood and becomes unusable, it has to be written off. Now whether you write off after three months or six months or year it does not matter. Once you write it off, make the respective entries the FAR.
I don't think that there is rule as such that we cannot write off any fixed asset before one year.
I know a classic case of major sweet manufacturing company of Chennai. They purchased about 80 weighing scales during the festival season of Deepvali. These weighing scales were imported from China. All the 80 weighing scales barely worked till the end of festival season and became unserviceable. Company had to write off all the 80 weighing scale in just three months!
Dinesh V Divekar
I checked Wikipedia on Fixed Assets. Click here to read the article.
Part of the article says that "The use of assets in the generation of revenue is usually more than a year- that is long term. It is therefore obligatory that in order to accurately determine the net income or profit for a period depreciation is charged on the total value of asset that contributed to the revenue for the period in consideration and charge against the same revenue of the same period. This is essential in the prudent reporting of the net revenue for the entity in the period."
This one year clause relates to depreciation only. But that does not mean that you should make entries in FAR after one year of its purchase. We should records details of fixed assets in FAR immediately after purchase.