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Accounting of fixed asset acquired free of cost

Dhaval (Job) (794 Points)

16 July 2020

My query is that our company got one fixed asset free of cost from our group company to be used in particular project.
How to account for this in books.
Please reply quoting relevant portion of accounting standards.

Thank you

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3 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 July 2020

If you include the fixed asset in consolidated financial statements, it will overstate fixed assets. I checked IndAS 110 and recognition criteria is to consolidate subsidiary+parent’s fixed assets. Branch accounting chapter has entries mentioned for the purpose of book keeping only when they have a monetary value. Here, the fixed asset is transferred free and used for a specific period. Hence, no need to record. If you are going to keep the asset till the end of its useful life, then, changes in accounting policies standard’s retrospective accounting changes can be used to derecognize the asset in parent books, and recognise it in subsidiary’s books restating all the balances including depreciation. However, retrospective changes is not appropriate here since your getting it for free. So leave it as it is.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 July 2020

In the parents books:

Write off Sploci PL

To Fixed Asset

In the subsidiary books: add fixed asset but it does not tally the dual aspect of transaction.

Maybe,

Fixed Asset a/c

To Sploci PL

will satisfy the dual aspect and balance sheet equation.

But you can still add an asset at cost although there is no standard guidance available. This is confusing as we cannot even use accounting for grants.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 17 July 2020

Hi, since I was in a haste last night, I just gave you a gist. Now, to transact this in the following manner, if the asset was transferred in the same year, in the parent account:

Asset write off

Purchases a/c

(derecognise to the extent of cost)

Then, realize the loss to income statement like this:

SPLOCI PL

To Fixed Asset a/c

(again cost less depreciation or FVLCD which ever is lower)

Then adjust tax consequences like:

Trading income/PBT a/c

To Allowance for loss a/c

(I don’t think one can claim, if there is some tax law which allows, then follow the above)

Note: when the Asset is transferred after two years, adjust current years purchases and tax consequences based on ‘lower of current cost less depreciation less impairment or FVLCD.

In the books of subsidiary:

Fixed Asset a/c

Gain on acquisition a/c

(no need for purchases account here as it is a free resource)

Note: IndAS permits every measurement to be used in every standard in IndAS when there are no specific guidelines available. Hence, choose lower of carrying amount or FVLCD as writeoff amount.

But it is better if you do some calculations to confirm purchases, cash, asset measurement to assess the real loss. Or rather, treat depreciation to head office and maintenance to branch office and do nothing. This is a gist again. Bye