What are fixed assets? Classification and conditions for recording fixed assets
Fixed assets (fixed assets) play a key role in the production and business activities of any enterprise. Understanding fixed assets, their classification and recognition conditions not only helps businesses manage assets effectively but also optimize costs and improve business efficiency. In the article below, let's learn about this content in detail with 1C Vietnam!
1. What are fixed assets?
Fixed assets are labor materials with great value, participating in many business cycles and bringing economic benefits to businesses. At the same time, these documents also meet the standards for recording conditions as fixed assets of the State. Fixed assets usually include factories, machinery and equipment, and vehicles such as cars.
Fixed assets play an important role in the production and business process of an enterprise. Accurate and complete recording of fixed assets helps determine asset value, calculate costs and prepare financial reports effectively.
2. Classification of fixed assets
In corporate financial management, classification of fixed assets plays an important role. Understanding the types of fixed assets helps businesses easily monitor, manage and use these assets effectively. Based on the form of assets, they can be divided into two types: tangible fixed assets and intangible fixed assets.
2.1 Tangible fixed assets
Define | These are physical assets that have a specific form, can be seen and touched, are used over many business cycles but still maintain their original shape. |
Classify | According to accounting standard No. 03, tangible fixed assets are classified according to their purpose and nature of use, including:
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For example | Company A does wholesale business of domestic consumer goods and bought 10 large trucks, priced at 245,000,000 VND/truck (not including VAT) to distribute goods to the provinces. These vehicles are registered under the company's name. Regarding standards for recording fixed assets:
The trucks meet the standards for recording tangible fixed assets, the company needs to record an increase in assets, track each vehicle separately and depreciate according to Circular 45/2013/TT-BTC. |
2.2 Intangible fixed assets
Define | Intangible fixed assets do not have a specific physical form but reflect investment value. These assets are held and used by businesses in production, business, and service provision activities and meet the criteria for recognizing intangible fixed assets. |
Classify | Types of intangible fixed assets include:
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For example | Company A, specializing in providing beverage services, has invested in the copyright of the mixing formula with a value of 200,000,000 VND (excluding VAT). At that time, the formula copyright becomes part of the company's intangible fixed assets. |
In addition to the above classification, depending on management purposes, businesses can also classify assets according to the following criteria:
- Classification by purpose of use: Fixed assets used for welfare purposes, fixed assets used for business purposes,...
- Classification by status of use: Fixed assets in operation, fixed assets waiting for liquidation, unused fixed assets, fixed assets under maintenance, ...
- Classification by source of formation: Fixed assets formed from equity, fixed assets formed from borrowing capital...
3. Conditions for recording fixed assets
Before recording fixed assets , businesses need to comply with a number of specific regulations and conditions to ensure accuracy and transparency in financial management. Below are specific criteria for businesses to refer to.
3.1 Record tangible fixed assets
According to VAS 03 accounting standards, tangible fixed assets are physical assets with a specific form that an enterprise owns to serve production and business activities and meet the standards for recording fixed assets. material.
Tangible fixed assets are assets that have a physical form
According to Article 3 of Circular 45/2013/TT-BTC, standards for recording fixed assets include the following conditions:
- The use of assets must certainly yield economic benefits in the future.
- The asset's useful life must be 1 year or more.
- The original cost of the asset is determined reliably and reaches a value of VND 30,000,000 or more.
When considered on a system consisting of many individual assets linked together, those parts are considered independent fixed assets if:
- The system can still perform its main function without this part;
- Parts have a different useful life than the entire system, or contribute to creating economic benefits for the business according to other standards;
- This department must be managed separately due to technical requirements.
*Note: Only when all three criteria above are simultaneously met, assets are considered fixed assets.
3.2 Recording intangible fixed assets
According to VAS 04 accounting standards, intangible fixed assets are assets that have no physical form but can be determined and are used by businesses in business, production, service provision or for other purposes. leased by another entity, in accordance with the standards for recording intangible fixed assets.
For example: Patents, copyrights, software programs...
According to Article 3 of Circular 45/2013/TT-BTC, all actual expenses that an enterprise has spent that simultaneously satisfy all three standards specified in this Article, without forming tangible fixed assets, are considered intangible fixed assets.
*Note: Expenses that do not simultaneously satisfy all three standards stated in Article 3 of this Circular are directly accounted for or gradually allocated to the business expenses of the enterprise.
4. Some concepts related to fixed assets
When learning about fixed assets, businesses need to master a number of related concepts to have a more comprehensive and in-depth view of this issue. Let's explore the concepts below.
Concept | Define |
Fair value of fixed assets | The amount for which an asset can be exchanged between knowledgeable parties. |
Similar fixed assets | Fixed assets have similar functions and approximately the same estimated value in the same business field. |
Upgrading fixed assets | Activities intended to improve or extend the features, quality or lifespan of an asset compared to its original state. |
Depreciation of fixed assets | The gradual decrease in value of fixed assets due to factors such as natural wear or technological advances during use. |
Original price of fixed assets | All costs that a business must pay to own a tangible fixed asset until that asset is ready for use. |
Depreciation of fixed assets | The allocation of the original cost of that asset to production or business expenses over time. |
Accumulated depreciation value of fixed assets | The total accumulated depreciation value of that asset as of the reporting date. |
Accumulated depreciation of fixed assets | Total amount of money depreciated into production or business expenses over business periods up to the reporting time. |
Time for depreciation of fixed assets | the period of time that the enterprise stipulates for depreciation of fixed assets. |
Repair of fixed assets | Maintenance and repair to restore the normal operation of the asset |
Residual value of fixed assets | The difference between the original cost of an asset and its accumulated depreciation. |
5. Accurate fixed asset accounting
Fixed asset accounting is an important part of the financial management process of a business. This not only requires precision and care, but also requires a deep understanding of relevant accounting and legal regulations. Let's go into detail about the fixed asset accounting process to better understand how to do it accurately and effectively.
If you buy assets without having to install, test run, or invest and can be used immediately, account as follows:
- Debit Account 211: Fixed assets (original price excluding VAT)
- Debit Account 1332: Deductible VAT
- Have account 1121 or account 331
If purchasing tangible fixed assets with spare parts and equipment, account as follows:
- Debit Account 211: Tangible fixed assets
- Debit Account 153: Tools and equipment (equipment, replacement parts)
- Debit Account 133: Deductible VAT
- There are accounts 111, 112, 331
If purchasing tangible fixed assets by deferred payment, installment payment and immediate use, account as follows:
- Debit Account 211: Tangible fixed assets (original price paid immediately)
- Debit Account 133: Deductible VAT (if any)
- Debit Account 242: Prepaid expenses (deferred interest is the difference between the total amount to be paid and the purchase price paid immediately)
- There are accounts 111, 112, 331
For other cases such as sponsorship, donation, or donation of tangible fixed assets, the accounting is as follows:
- Debit Account 211: Tangible fixed assets
- Account 711: Other income
Other directly related costs are included in the original price and accounted for as follows:
- Debit Account 211: Tangible fixed assets
- There are accounts 111, 112, 331
For the purchase of houses and architectural objects attached to land use rights and for immediate use, the accounting is as follows:
- Debit Account 211: Tangible fixed assets (original price of houses and architectural objects)
- Debit Account 213: Intangible fixed assets (detailed historical cost of land use rights)
- Debit Account 133: Deductible VAT (if any)
- There are accounts 111, 112, 331
In fact, understanding and correctly applying the standards and conditions for recording fixed assets not only helps businesses manage their finances effectively but also creates a solid foundation for sustainable development. Through this article, we hope businesses have an overview of fixed assets, from which they can effectively apply them to business practice. If you have any questions, please contact 1C Vietnam for support.