9

Lecture fixed assets of the enterprise

The highest share in the structure of the property complex of the enterprise is occupied with fixed assets.

Fixed capital is manufacturing assets which are used repeatedly or constantly during a long period, but not less than one year, for producing goods and rendering market and non market services. Fixed assets are divided into material and non-material assets (Fig. 1)

Figure 1. Fixed assets of the enterprise

Buildings, constructions, machines and equipment, measuring and regulating devices, dwellings, computer facilities and office equipment, vehicles (transport means), tools, industrial and household stock (inventory), draught animals, productive livestock, pedigree cattle, perennial planting and other kinds of material fixed assets belong to fixed assets (fixed funds) of the enterprise.

Computer software, original entertaining products, fiction or art works, scientific industrial technologies, other non-material fixed assets, which are objects of intellectual property, the use of which is limited by the owner’s rights established for them, belong to non-material fixed assets.

Material and non-material fixed assets are shown in the balance of the enterprise.

1. Fixed funds, their structure and classification

Fixed funds include means of production which repeatedly participate in the production process, preserve their natural form, and transfer their value to manufactured production by parts according to the degree of their wear and tear. Means of production with the term of service of more than 12 months belong to fixed funds.

Capital investments into radical soil improvement (drying, irrigating and other meliorating work) and investments into rented objects of fixed funds also belong to fixed funds.

Ground areas, objects of wildlife management (water, the bowels of the earth and other natural resources) which are in the organization property are taken into account in the structure of. fixed funds of the enterprise.

2. Accounting fixed funds cost

Fixed funds transfer their cost to a ready product gradually during a long time, covering several production and technological cycles. Therefore accounting of fixed funds and their reflection in the balance are organized so that it was simultaneously possible to show preservation by them of their initial form and their gradual loss of cost.

It is necessary to distinguish acquisition cost, depreciated cost (residual value), adjusted historical cost of fixed funds.

The acquisition cost reflects actual expenses for the purchase (creation) of fixed funds. The acquisition cost does not change. The exception makes radical reconstruction or partial liquidation.

For a separate object the acquisition cost is defined according to the formula:

C_ac = C_equip.acq + C _inst. + Exp_trans + Exp_{oth ,}

where C_ac - acquisition cost; C_{equip.acq .} - cost of the acquired equipment; C _inst - cost of the installation work; Exp_trans - expenses for transportation; Exp_oth - other expenses.

The adjusted historical cost corresponds to expenses for the creation or purchase of similar fixed funds under modern conditions. The reassessment of fixed funds for the definition of the adjusted historical cost is carried out by the indexation or direct recalculation according to documentary confirmed market prices.

The gradual loss of fixed funds cost is reflected in the estimation of fixed funds at the depreciated cost (residual value). The depreciated cost (residual value) represents the acquisition cost (adjusted historical cost) reduced by the size of wear and tear:

C_dc= C_ac – W_aT ,

where C_dc - depreciated cost (residual value) of fixed funds; W_aT - wear and tear of fixed funds.

The estimation of fixed funds at the depreciated cost (residual value) is necessary to know their qualitative condition and for making up the accounting balance.

Since within one year the physical volume of fixed funds changes (the enterprise, for example, can purchase some units of new equipment and write off a part of working equipment), the acquisition cost of fixed funds at the end of the year will differ from the acquisition cost at the beginning of the year. The acquisition cost at the end of the year is calculated as follows:

C_ac ^y.e. = C_ac^y.b_. + C_com – C_w ,

where C_ac ^y.e. - acquisition cost at the end of the year; C_ac^y.b - acquisition cost at the beginning of the year; C_com - cost of fixed funds commissioned during the year; C_w - cost of fixed funds withdrawn during the year.

Since the cost of fixed funds at the beginning and at the end of the year can differ considerably, the indicator of the average annual cost is used in economic calculations. The definition of the average annual cost of fixed funds is possible in various ways.

When using the simplified method the average annual cost of fixed funds is defined as the half-sum of the residues at the beginning and at the end of the period:

,

where C_an - average annual cost of fixed funds; C_y.b - acquisition cost at the beginning of the year; C_y.e^. - acquisition cost at the end of the year.

But input-output of fixed funds within one year is not equal, therefore the method suggested above gives an approximate result. The formula which takes into account the month of input-output is applied for more exact definition of the average annual cost of fixed funds:

where symbols of М₁, М₂ – the number of full months since the moment of commissioning or withdrawal of objects (a group of objects) till the end of the year correspondingly.

However the most exact method of defining average annual cost of fixed funds is the calculation of the average chronological annual cost according to the following formula :

C_an =[(C_m.b.1 + C _m.e.1) / 2 + (C_m.b.2 + C _{m.e. 2}) / 2 + …. + (C_m.b.12 + C_m.e.12) / 2] / 12

After a certain period of time from the moment of the purchase or creation the fixed funds lose a part of their value. In economics such phenomenon is called wear and tear.