Future economic benefits with respect to the fixed assets
Fixed assets are such items like property, plant equipment engaged by business entity. These will be generated when the expansion of revenue occurred. The fixed assets are qualified only when it has anticipated useful life for more than one year and has significant value. When the fixed assets are in use, the original shape shall be retained. The International Accounting Standard (IAS) 16 described that fixed assets are whose future economic befit is probable to flow into entity and whose cost can be measured reliably.
The said assets are tangible items and held for use in the production. While calculating cost of item of such property (fixed assets) and the asset is recognized only when the future economic benefits expected and the cost of the item is measured reliably. Accumulation of fixed assets always advantageous so that they will deliver future economic benefits. It is chain system of past transactions. The starting of the business with the initial investment make contributions towards fixed assets. The fixed assets will not give immediate benefit in the current nature.
It is regular process and flow that future benefits can be achieved from the fixed assets. From such benefits again the fixed assets can be purchased. Hence it is chain system. Always the benefits or profits cannot be distributed. The so derived benefits can be used for purchase of fixed assets. The future economic benefits also depend upon the system of depreciation also. Depreciation is an allocation of some amount on asset over its useful life. Some assets qualify for 25% and some qualify 100% for one year.
The amount of depreciation is cost an asset after deduction residual value. The depreciation should be allocated separately for each asset. The methods of deprecation may be fixed and diminish methods. The method of depreciation reflects on the asset’s future economic benefits. The future economic benefit also depends upon the selection of accounting methods, besides depreciation methods. There are three types of accounting methods like Assets without amortization, asset with systematic amortization and assets with immediate write off.
In accounting terminology, asset whether it is fixed or current whatever it may be which can product future economic benefit. It can be said that it is economic source controlled by the organization derived as a result of past transactions. The assets are controlled by the organization through asset tracking tools. The asset tracking tools monitor the assets from purchasing level to disposal level, which involves different stages like purchasing, upgrading, servicing, licensing, disposal etc. the assets may be physical assets or non physical assets like intellectual property rights etc.
The fixed assets are purchased for continuous and long-term use, which contributes the earning of profit in the business. It can also be termed as PPE i. e. property, plant and Equipment. The measurement of value of economic benefit is not possible then it can be measured indirectly by reference to the cash paid by the employer to the employees or government for whatever is the reason. So the economic benefit may not be derived directly from the fixed assets, it may be derived even from some schemes like stock option scheme.
The Financial Accounting Standard Board described the future economic benefits Assets are main elements of financial statements and these are direly related to the measurement of financial position for which equity and liabilities know. Hence the future economic benefits with respect to the assets are to be assessed. However, the separate financial assets are described IFRS for which they linked with recognition, measurement, derecognition etc. The economic benefits may arise number of ways and the benefits depend upon the ability of the asset, which reduces cash outflows.
The assets will come from past transactions or past events. The organizations/entities normally obtain assets by cash or credit purchases or even for lease/barter system. And sometimes even the organizations sell the goods/services and purchase the assets without cash/credit. The entity or organization will obtain the future economic benefits, which are supposed to receive from assets. Besides the entity/organization will have control over the future economic benefits which will be received out of past transactions.
The future economic benefits refer the capacity of an asset and monitoring of such asset. Such economic benefits out of such assets result in net cash inflows to the entity. Identifying the future economic benefits is performance of business valuation. The economic benefits are inflows i. e. revenues, net income, net cash flows etc. The inflows recycled and can be used purchase of assets. All such inflows derived out of past transactions and events. The economic benefit always may not come in the form of cash. Hence the resources must be identified with respect to the asset.
The resources of the assets must contribute to future net cash inflows and the entity must be able to obtain the benefit or in a position to have control on the benefit.
REFERENCE: 1. http://www. pwc. com/Extweb/service. nsf/docid/A6C835D6C28077C58025712900425A89 2. http://www. iasb. org/NR/rdonlyres/C10C2381-6B52-4C4A-92D4-7874C40040D0/0/IAS16. pdf 3. http://www. smallbusiness. com/wiki/Asset 4. http://media. wiley. com/product_data/excerpt/0X/04710921/047109210X. pdf 5. http://www. iasplus. com/agenda/framework-b. htm 6. http://www. eagletraders. com/advice/securities/assets. htmSample Essay of Essayontime.com