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Finance For Managers.

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Introduction

FINANCE FOR MANAGERS MODULE B103 ASSIGNMENT Fixed assets Fixed assets represent the more or less permanent assets of the business. They are not normally for re-sale. Examples include premises, fixtures & fittings, furniture, equipment and motor vehicles. Investments of a long-term nature may also be included. The purchase of stocks and shares in other companies of property investment are some examples. These fixed assets are 'tangible' because they can be seen. Some assets are 'intangible' because they cannot be seen. Goodwill is one of the latter and represents the good name or reputation of the business, which could be valuable, if it is sold. Three examples of fixed assets are: * Premises or buildings This is considered to be a fixed asset because it is owned either by the business or by the owner and is of value. Buildings are property and are therefore usually not re-sold; they tend to be more permanent assets to the business. * Equipment This is a purchase by the business and can include such things as stationary, machinery and other items relating to the running of the business. ...read more.

Middle

Depreciation is therefore regarded as an expense to the business and the purchase of fixed assets is like buying an expense charged against profits over periods, until the asset is disposed of. The Fixed Instalment / Straight-line method This method charges the same depreciation sum each year against profits. The amount is calculated by firstly dividing the difference between the cost price of an asset and the amount expected to be realised when the item is resold (residual value). This figure is divided by the number of years the business intends to hold the asset. If an asset is not expected to be resold, annual depreciation is the cost price of an asset divided by the number of years. Many organisations use this type of depreciation on fixed assets such as furniture, fittings, plant, machinery and equipment. Advantages: * Simple & effective method * Preferred for costing purposes The Reducing Balance / Diminishing Balance method An alternative method of depreciation of fixed assets is to ensure that the depreciation charge each year diminishes as the asset gets older and is of less value. ...read more.

Conclusion

The standard indicates that a change of method is only acceptable if it is thought that it will give a better or fairer position of the accounts. Financial Reporting Standards (FRSs) Accounting standards developed by the ASB are contained in 'Financial Reporting Standards' (FRSs). After the adoption of standards issued by the ASC, FRS's has superseded some of the SSAP's. The statement associated with depreciation of fixed assets is FRS No. 12 Provisions, Contingent Liabilities and Contingent Assets. FRS No. 15 - Tangible Fixed Assets FRS 15 sets out the principles of accounting for tangible fixed assets and ensures that these assets are accounted for on a consistent basis. The FRS permits a choice as to whether tangible assets are stated at cost or at revalued amount. FRS 15 incorporates many of the requirements of SSAP 12; the FRS recognises that in a limited number of cases, no depreciation charge may be made because it is immaterial. Where this is the case, or where depreciation is calculated on a basis that assumes that the useful life of an asset is longer than fifty years, the standard requires annual impairment reviews. This will ensure that the carrying amount of the asset is not overstated. FRS 15 is effective for accounting periods ending on or after 23 March 2000. ...read more.

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