Fixed assets : It represents the capitalized amount of expenditures made to acquire tangible property which will be used for a period of more than one year , tangible property includes land , buildings , equipment , assets , received through donation should be recorded at F.M.V with a corresponding credit revenue ; if F.M.V is not determined book value should be used .

1- Property, plant, equipment:

General Rules:

- Capitalized amount = cost of Assets
+ All costs necessary to get work
+ All costs to prepare it for use
- Cost of assets = cash paid
Or FMV of assets received
Or cash paid + FMV of Assets Given
- Gifts (Donation)

If FMV is determined If FMV is not determined
Dr. F/A ( FMV)

Cr. Revenue DR. F/A ( Book Value)
Cr. Revenue


A company purchased machine at amount of L.E. 500
Cost of shipping this machine ( freight in ) L.E. 100
Cost of installation L.E. 50
Cost of Testing L.E. 40

Then: How can we recognize this machine in F/A?

Cost of Assets 500 cash paid
Cost necessary to get the work site 100 shipping
) Cost to prepare it for use 90 ( installation , testing
Total capitalized 690

We couldn't capitalize any expenses after starting to use the machine , Except if these expenses considered as additions which increase the quality , out put of services , extend the useful life of the machine.

2- Land and building:
Any proceeds obtained in the process of getting the land ready for its intended use are treated as reductions in the price of the land .

Fair Market value Book value
$25,000 $30,000 inventory
25,000 20,000 land
50,000 35,000 Building
$100,000 $85,000

Inventory $25,000* $80,000=$20,000

Land $25,000 * $80,000 = $20,000

Building $ 50,000 * $80,000 = $ 40,000

Assume total cost of Land & Building is:

Purchase price L.E. 900 F.M.V of land L.E 800
Delinquent taxes assumed L.E.300 F.M.V. of building L.E.1200
Legal fees L.E. 100
Title insurance L.E. 150
Total cost L.E. 1450 Total F.M.V. L.E 2000

How to make the allocation to land & building?

We have to use relative F.M.V. Method:

Cost of land = 800*1450= L.E. 580

Cost of building = 1200 * 1650 = L.E. 870
Total cost (book value) = L.E. 1450

4- Capital vs. revenue Expenditures:

Capital expenditures: they are not normal recurring expenditures
They benefit the operations of more than one period .

Revenue expenditures: they are normal recurring expenditure, some expenditures that meet the test for capital expenditures are expensed because they are immaterial.

Revenue expenditure Capital expenditure
- They benefit the operations less than or equal one period .
- Normal , recurring expenditures They benefit the operations for more than one period .
- not normal , recurring expenditures
Exception : some capital expenditures may be recorded as revenue expenditures because they are immaterial ( e.g. any fixed assets less than $ 50)

Disposal of property, plant & equipment:

Acc. Dep.(balance)
Loss on Disposal(plug)
Fixed asseid(original cost)
Gain on Disposal(plug)
Note: No gain or loss in composite(group) dep. Method.

.Disposal and impairment value:

Example: Jimco,a manufacturer of sports equipment , purchased a machine for $6,000 on 1|1\98 . The machine had on eight year life , a$6,000 salvage value , and was depreciated using the straight-line method . Thus depreciation was charged at a rate of $56,25 per month {($6,000-$600 salvage)/(8years*12 month)} . If Jimco sells the asset on 9\1\03 for $3,000 , the following entries must be made to record 2000 depreciation and or record the sale :
Depreciation expense 450
Accumulated depreciation 450
($56,25 * 8mos)
Cash 3,000
Accumulated depreciation 3,825
($56,25 * 68mos)
Equipment 6,000
Gain on sale of equip. 825
[$3,000 cash –($6,000-$3,825) cv]

- Depreciation Method & Depletion: -
Basic Terms in SL Method:
Straight-Line Rate = 100 % ÷ Useful Life (in years)
Book Value = Cost – Accumulated Depreciation
Depreciable Basis = Cost – Salvage Value
[ SL ] Double-Declining Balance
[ DDB ] Sum-of-the years` digit
[ SYD ] Units of
- Use when benefit from asset is
uniformed over asset`s life.

Annual Depreciable Straight
Dep. = Basis Line Rate

Composite(group) Dep. :
Dep. Rate = Sum of Annual SL
Dep. of Individual

Total Asset Cost

Gain or Loss Not Recognized on Disposal:
Dr. Cash (proceeds)
Dr. Acc. Dep. (plug)
Cr. Asset (original cost) - Use when the assets are more
productive in earlier years and
costs of maintenance increase
in later years and risk of
obsolescence is high.
DDB = Book Straight
Value Line Rate 2
Inventory Depreciation:
- Used where there are many
low cost tangible assets, such
as hand tools.
-Valuation of these assets is
based on appraisal value.
Annual Depreciation =
Beginning Cost Ending
Inventory + of - Inventory
Acquisition - Used the same as

SYD (first year) =
Depreciable basis
Last year serial No.
Total of serial No.

SYD (second yaer) =
Depreciable basis
Last year serial No. - 1
Total of serial No. - Use when usefulness
decreases with use .

Units of = Dep. Number
Production Rate of units

(Hours used)
is dep. of natural resources.

Annual Depletion =

Depletion Units Extracted
Base Total expected

Data for our illustrations, our illustrations of depreciation methods are base upon the data, on January 2, s&G wholesale Grocery acquires a new delivery truck .The data and estimates needed for the computation of the annual depreciation expense are:

Cost $17,000
Estimated $ 2,000
Estimated useful life $ 5years

Cost – residual value = $17,000-$ 2,000=$3,000 per year
Years of useful life 5years

This same depreciation computation is shown below in tabular form

Cost of depreciable asset $ 17,000
Less: estimated residual value (amount
To be realized by sale of asset
When it is retired from use) 2,000

Total amount to be depreciated