Dinesh Divekar
Business Mentor, Consultant And Trainer
Pon1965
Construction
+2 Others

A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time.
Definitions of Fixed Assets says that fixed assets are those assets which are not converted into cash for at least one year.
1) Suppose if we purchase an asset and sold it within 3 months due to some unexpected reason, whether the same will be treated as fixed asset?
2) Whether it will be considered in the fixed asset register?
regards
Bindhu
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If you sold it, it will not be reflected in Average Net Fixed Assets. Bear in mind that the depreciated value of Fixed assets are also part of working capital. Pon
Hi Thanks a lot for the replay; can you please explain me in detail? If the asset is sold before one year, it will be treated as Fixed Asset disposal or normal sales? Bindhu
Then how we can say that the Assets which are used more than one year is called Fixed Assets?
I think your queries are hypothetical. Fixed or immoval assets are counted from the day one. Once it crosses a year, depreciated value comes into picture. When you dispose an asset, the revenue received from the disposal comes under misc. revenue. In any company, the accounting is as follows.
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
Pon
Hello Bindhu,

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!

Ok...

Dinesh V Divekar



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Dear Bindhu,
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.
Ok...
DVD
There is a fixed asset management software to calculate depreciated value of assets as on current date. For more information - http://farsightitsolutions.com
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