CHAPTER 4:

ACCOUNTING
FOR FIXED
ASSETS
OBJECTIVES
➢ Explain the accounting standard
related to fixed assets.
➢ Apply appropriate accounting
accounts when journalising
transactions related to fixed assets.
➢ The meaning of information through
financial ratios.
 CONTENT
❖ Concept, recognition and record of fixed assets.
❖ Apply accounting accounts in journalising transactions
related to fixed assets.
❖ Presentation of fixed assets on financial statements.
❖ The meaning of information through financial ratios.
Concept, recognition and record
of fixed assets
SECTION 1
 CONCEPT

 Tangible fixed assets are assets in the physical

form held by enterprises to be used for
production and business activities in
accordance with the standards for recording
tangible fixed assets.
CLASSIFICATION OF TANGIBLE
FIXED ASSETS

 Buildings and structures

 Machinery and equipment
 Transportation and transmission vehicles
 Office equipment
 Perennial trees, working and producing animals
 Other tangible fixed assets
 Recognition of fixed assets
Tangible fixed assets must meet all four recognition
criteria simultaneously:
It is certain that future economic benefits will be
obtained from the use of the asset;
The historical cost of the asset must be reliably
determined;
The estimated useful life must be more than one year;
The asset must meet the value threshold as prescribed
by current regulations."
 CALCULATE THE INITIAL COST OF
ASSETS

The initial cost is the total cost that an enterprise must

spend to obtain a tangible fixed asset up to the time of
putting that asset into a state of readiness for use:
✓ Purchase price (minus trade discounts /sales
discounts /interest due to late payment if any).
✓ Taxes are non-refundable.
✓ The cost is directly related to putting the asset into a
ready-to-use state.
Example:
The investment log of C-02 plastic production equipment is as follows:
❖ On March 2, the purchase contract was signed with a total payment price of 870 million VND (including
VAT 70 million, interest due to late payment of 100 million VND)
❖ On March 5, the expenditure on construction, installation of machine platforms and electricity and water
systems ready for equipment installation is 15 million.
❖ On March 7, it was handed over
❖ On March 8, the construction and installation under the guidance of an independent consultant, the
expert cost is 44 million VND (including 10% VAT)
❖ On March 12, the machine was put into trial operation, the amount of plastic raw materials used was 10
million VND from the factory warehouse, the contracted labor wage was 2 million, the machine was
operated satisfactorily and signed for acceptance. The recovered plastic scrap is valued at 1 million.
❖ On March 15, the first batch of goods was started with a quantity of 200 million plastics, 5 million
workers, but the products did not meet the requirements, customers should put them in recycling. The
value of broken products put into recycling is assessed at 20 million VND.
Request:
Determine the time to record the historical cost of equipment
Determining the cost of equipment
 Regulations on Recognizing Fixed Asset Repair Costs
After Initial Recognition
Under Vietnamese Accounting Standards (VAS), the costs incurred for repairing tangible fixed
assets after initial recognition are accounted for based on their nature and purpose. These costs are
classified into two categories:
1. Capitalized Costs (Recognized as an Increase in the Asset’s Value)
Repair or upgrade costs that enhance the asset’s future economic benefits beyond its originally
assessed standard of performance should be capitalized and recorded as an increase in the asset’s
value. These costs may:
•Extend the useful life of the asset.
•Increase the asset’s capacity or efficiency.
•Improve the asset’s quality or functionality.
Example:
A company upgrades its production machine by replacing a major component that increases
production capacity by 20%. The cost of this upgrade is capitalized and added to the book value of
the asset instead of being expensed immediately.
2. Maintenance and Repair Expenses (Recognized as Operating Expenses)
Routine repair and maintenance costs incurred to restore the asset to its normal operating condition
without increasing its future economic benefits should be recognised as expenses in the period they
are incurred. These expenses ensure the asset remains in its expected working condition but do not
extend its useful life or enhance its capacity.
Example:
A company spends money on periodic maintenance of its delivery trucks, including engine oil changes
and minor part replacements. These costs are recorded as operating expenses in the income
statement for the corresponding period.
DEPRECIATION

As time passes, tangible fixed assets (except land) lose their
ability to provide useful services. In other words, when they get
older, they may spoil, and do not work as well as before.
 Fixed asset’s cost: all amounts spent to get it to
ACCOUNTING the business’ premises and ready for use
FOR
DEPRECIATION Expected useful life: how long the fixed asset
can be used by the business

Residual value: what the fixed asset item is

worth at the end of its expected useful life
 ACCOUNTING FOR DEPRECIATION

 Three methods of depreciation:

1. Straight-line
2. Units-of-production
3. Declining-balance

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 STRAIGHT-LINE DEPRECIATION
 This method provides for the same amount of depreciation expense for each
year of the asset’s useful life.

Depreciation Cost
Annual
Depreciation
Expense
Estimated useful Life
 EXERCISE 1

There is information about a fixed asset as follows:

Initial cost of fixed assets [Link]

Residual value [Link]

Estimated useful life 5 years

Total number of products according to design
1.000.000 units
capacity

Request:
Calculate the annual depreciation rate according to the straight-line method

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 DECLINING-BALANCE METHOD
 This method provides for a declining (reducing)
depreciation expense over the useful life of the asset.

 The highest amount of depreciation is recorded in the

first year.
 Depreciation amount:
 For the first year = cost of asset X declining-
balance rate
 After the first year = the opening net book value X
declining-balance rate
 EXERCISE 2

There is information about a fixed asset as follows:

Initial cost of fixed assets [Link]

Estimated useful life 5 years

Total number of products according to design
1.000.000 units
capacity

Request:
Calculation of depreciation rate according to the declining balance method
Calculate the annual depreciation rate according to the declining balance method
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 UNITS-OF-PRODUCTION DEPRECIATION
 This method is used when the usage of fixed asset varies from year to year.
 The idea is that the more depreciation should be recorded when the machine is used
for more hours (or for more units produced)
 The useful life of fixed asset is now expressed in terms of estimated number of hours
used or estimated number of units produced

Depreciation Cost
Depreciation
For a unit-of-
production
Estimated Number of hours used
(or estimated number of units
produced)
 EXERCISE 3

There is information about a fixed asset as follows:

Initial cost of fixed assets [Link]

Residual value [Link]

Estimated useful life 5 years

Total number of products according to design
1.000.000 units
capacity

Request:
Calculate the annual depreciation rate according to the unit of production method

21
 REGULATIONS ON FIXED ASSET LIQUIDATION

Fixed assets may be liquidated when:

• They are no longer usable or necessary for business activities.
• The remaining value is too low to be significant.
• A formal decision is made by the authorized personnel (Board of Directors, General
Director, Business Owner, etc.).
• All required accounting and tax documentation is completed.

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➢ Fixed assets will be excluded from the statement of financial position, by
writing off the original cost and accumulated depreciation value of the assets.
➢ Profit or loss arising from liquidation or sale of tangible fixed assets is
calculated as the difference between income from liquidation or sale and
liquidation or sale expenses plus (+) the remaining value of tangible fixed
assets.
Example: A company disposes of a machine with an original cost of 100 million VND
and accumulated depreciation of 80 million VND. The amount of liquidation expense is
3 million. The selling price is 25 million VND (excluding 10% VAT).
Request: Determination of profit (loss) from liquidation of fixed assets

The amount of accumulated depreciation is 80 million → Book value is 20 million

The selling price is 25 million > book value : 20 million + liquidation expense: 3 million
→ Make a profit = 25 – 20 -3 = 2 million
 Apply accounting accounts in
journalising transactions related
to fixed assets SECTION 2
 Accounting for tangible fixed assets

Account 211
Debit Credit
▪ An increase in historical cost of the tangible fixed asset ▪ A decrease in historical cost of the tangible
due to completed constructions, purchase, receipt of fixed assets due to transfer to other
capital contribution, grant, donation, present, or surplus; enterprises, liquidation or contribution into
joint venture, etc.
▪ An increase in historical cost of the fixed assets after
▪ A decrease in historical cost of the fixed
adjustment due to additional construction or equipment, asset due to dismantlement of one or several
or upgrade; parts;
▪ An increase in historical cost of the fixed assets due to ▪ A decrease in historical cost of the fixed
re-evaluation. asset due to re-evaluation.

Debit balance
Current historical costs of the fixed assets of the
enterprise.

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 METHOD OF ACCOUNTING FOR SEVERAL MAJOR TRANSACTIONS
(1) When receiving equity or capital in form of tangible fixed assets:
Dr 211 – Tangible fixed assets
Cr 411 – Owner’s invested equity.
(2) Purchased fixed assets
Dr 211 – Tangible fixed assets (VAT-exclusive prices)
Dr 1332 – Deductible VAT
Cr 111, 112, 331, 341
(3) When purchasing tangible fixed assets in deferred payment or instalment
Dr 211 – Tangible fixed assets (historical cost – cash prices)
Dr 1332 – Deductible VAT
Dr 242 – Prepaid expenses (deferred interest equals (=) total payment minus (-) cash price and VAT
(if any).
Cr 111, 112, 331
- When make periodical payment to sellers, the following accounts shall be recorded:
Dr 331 – Account payables
Cr 111, 112 (periodical payables, including periodical principal and interest in deferred payment or
instalment payables)
- The interest in deferred payment or instalment payables shall be periodically recorded as follows:
Dr 635 – Financial expenses
Cr 242 – Prepaid expenses
Example:
1. Enterprises receive capital contributions in the amount of 1 fixed asset worth VND 1,000,000,000.
Dr 211 1,000,000,000 dong
Cr 411 1,000,000,000 dong
2. Enterprises buy a device for immediate use at a price of 50,000,000 VND on credit, 10% VAT.
Shipping cost 2,000,000 VND, 10% VAT, pay in cash.
Dr 211 50,000,000 dong
Dr 1332 5,000,000 dong
Cr 331 5,500,000 dong
Dr 211 2,000,000 dong
Dr 1332 200,000 dong
Cr 111 2,200,000 dong
3. Buy a device in the form of installments for 24 months with a payment amount of 10 million
VND/month. The immediate purchase price of the device is 200 million VND (price before tax, tax
rate 10%).
Dr 211 200 million
Dr 1332 20 million
Dr 242 20 million
Cr 331 240 million
Each month:
Dr 635 0,83 million
Cr 242 0,83 million
Dr 331 10 million
Cr 112 10 million
(4) When selling fixed assets used for business”
Dr 111, 112, 131, etc.
Cr 711 – Other income (VAT-exclusive prices)
Cr 33311 – VAT payables
A decrease in purchased fixed asset shall be recorded according to receipt slip of fixed asset:
Dr 214 – Depreciation of fixed assets
Dr 811 – Other expenses (book value, if any)
Cr 211 – Tangible fixed assets (historical cost)
Costs related to sale of fixed assets shall be recorded to Dr 811 “Other expenses”.
Dr 811
Dr 1331
Cr 111, 112, 331
Example: A company disposes of a machine with an original cost of 100 million VND and
accumulated depreciation of 80 million VND. The amount of liquidation expense is 3 million,
pay in cash. The selling price is 25 million VND (excluding 10% VAT) and receives in cash.

Dr 214 80 million
Dr 811 20 million
Cr 211 100 million
Dr 811 3 million
Cr 111 3 million
Dr 111 27,5 million
Cr 711 25 million
Cr 33311 2,5 million
 Accounting for Depreciation of fixed assets

Account 214
Debit Credit
▪ Decreases in depreciation of fixed assets, investment ▪ Increases in depreciation of fixed assets or
properties because the fixed assets or investment investment properties because the fixed
properties are liquidated, sold, or transferred to other assets or investment properties are
depreciated.
enterprises or contributed to other enterprises as
capital.

Credit balance
Accumulated depreciation of existing fixed
assets or investment properties of the
enterprise.

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METHOD OF ACCOUNTING
FOR SEVERAL MAJOR
TRANSACTIONS

Periodically, when calculating,

deducting and recording fixed assets to
operating costs, the following accounts
shall be recorded:
Dr 627, 641, 642
Cr 214 – Depreciation of fixed assets
Presentation of fixed assets on
financial statements
SECTION 3
 Principles of Presenting Fixed Assets Information
Fixed assets are presented in the Statement of Financial Position under the following:
➢ Historical cost of fixed assets
➢ Accumulated depreciation of fixed assets
➢ Net book value of fixed assets
Information in the Notes to Financial Statements: Depreciation methods and useful life
Classification of fixed assets (tangible, intangible, leased)
➢ Movements of fixed assets during the period, including:
➢ Additions from purchases and new constructions
➢ Disposals from liquidation or sales
Financial ratios

SECTION 4
 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Fixed Asset Turnover Ratio =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠

Meaning: Measures how efficiently a company is using its fixed assets to

generate sales.