Fixed assets refer to properties and equipment acquired by a company for long-term use in production operations. Here is a detailed look at the standards for fixed assets.and how they are accounted for, with practical examples:

 1- Initial Recognition of Fixed Assets

 Investments are recorded at cost:

• For example, if a company purchases production equipment for SAR 100,000 with additional shipping and installation costs of SAR 5,000:

Total cost = SAR 100,000 (purchase price) + SAR 5,000 (additional costs) = SAR 105,000.

The asset would be recorded as follows:

• Debit: Equipment (SAR 105,000)
• Credit: Cash (SAR 105,000)

 2- Credit: Cash (SAR 105,000)

 Fixed installment method:

For example, if the equipment has a useful life of 10 years and a residual value of SAR 5,000 at the end of its useful life:

  Annual depreciation = (Total cost – Residual value) / Useful life

Accordingly, the annual depreciation value can be calculated as follows:

                      = (SAR 105,000 – SAR 5,000) / 10 years

                     = SAR 10,000 annually.

Record the depreciation:

•   Debit: Depreciation expense (SAR 10,000)
•   Credit: Accumulated depreciation (SAR 10,000)

 Accelerated depreciation (declining balance method):

For example, if the accelerated depreciation rate is 20%:

1- First year:

  Depreciation = SAR 105,000 × 20% = SAR 21,000.

  Record the depreciation:

•   Debit: Depreciation expense (SAR 21,000)
•   Credit: Accumulated depreciation (SAR 21,000)

2- Second year:

  Depreciation = (SAR 105,000 – SAR 21,000) × 20% = SAR 16,800.

  Record the depreciation:

•   Debit: Depreciation expense (SAR 16,800)
•   Credit: Accumulated depreciation (SAR 16,800)

 3- Maintenance and Improvements

 Routine maintenance:

For example, if the company spends SAR 2,000 on equipment maintenance:

•   Debit: Maintenance expense (SAR 2,000)
•   Credit: Cash (SAR 2,000)

 Capital improvements:

For example, if the company adds a new part to the equipment for SAR 10,000 to increase its efficiency:

•   Debit: Equipment (SAR 10,000)
•   Credit: Cash (SAR 10,000)

 4- Derecognition of the Asset

1- Selling the asset:

For example, if the equipment is sold for SAR 50,000 after being depreciated for 5 years, with total depreciation of SAR 50,000:

  Book value of the asset = SAR 105,000 – SAR 50,000 = SAR 55,000.

2- Profit or loss:

  Loss on sale = SAR 50,000 – SAR 55,000 = -SAR 5,000.

3- Record the sale:

•   Debit: Cash (SAR 50,000)
•   Debit: Accumulated depreciation (SAR 50,000)
•   Credit: Equipment (SAR 105,000)
•   Credit: Loss on sale of fixed assets (SAR 5,000)

4- Fully depreciated asset:

For example, if the asset is fully depreciated and no longer usable:

•   Debit: Accumulated depreciation (SAR 105,000)
•   Credit: Equipment (SAR 105,000)

 5- Disclosure

 Disclosure in financial statements: Details of fixed assets must be disclosed in financial statements, including:

• Total cost
• Accumulated depreciation
• Net book value
• Any significant changes in fixed assets

Relevant accounting standards :

• IAS 16: Property, Plant, and Equipment
• IAS 36: Impairment of Assets
• IAS 36: Impairment of Assets

In conclusion, adhering to these standards helps companies ensure compliance and transparency in reporting fixed assets in their financial statements.