Accounting Principles: Fixed Assets, VAT, and Financial Instruments
Accounting Principles: Key Concepts
Here’s a breakdown of key accounting principles related to fixed assets, VAT, and financial instruments:
Depreciation of Fixed Assets
The function of depreciation for a fixed asset is to systematically and irreversibly allocate the initial expenditure over its useful life.
Intangible vs. Tangible Fixed Assets
False Statement: Only tangible fixed assets are involved in the company’s production process.
Costs Incurred and Tangible Asset Value
Costs incurred on tangible assets increase their value if all of the following conditions are met (as the original text suggests “all the previous answers are correct”).
Value Added Tax (VAT)
False Statement: VAT is a cost to the company and impacts income.
Intangible Assets
False Statement: Administrative concessions consist of obtaining a public subsidy.
Valuation of Fixed Assets
Correct Statement: When an item has been manufactured by the company, it should be valued at the cost of production.
Non-Current Assets Held for Sale
Correct Statement: At the time of classification as held for sale, depreciation must cease.
Foreign Currency Transactions
Correct Statement: If a debt is in dollars and the exchange rate goes from 1 EUR/1.2 USD to 1 EUR/1.5 USD, it will cause a positive exchange difference.
Impairment Losses on Loans
The existence of unpaid loans is sufficient evidence to recognize impairment losses on loans to commercial operations.
Financial Assets
Correct Statement: Financial assets include equity instruments of other companies that have been purchased and credits that have been granted.
Correct Statement: All the above are correct (referring to a previous, unprovided list of statements).
Investments held until maturity are initially valued at the fair value of the consideration given plus directly attributable transaction costs.
Insolvency of Customers
Firms can choose between two different methods to provide for insolvency impairments: the individual method and the global method.
Machine Impairment Example
A company has a machine with a book value of $6,000, a fair value of €5,000, a value in use of €4,950, and a probable sale cost of $100. A damage amounting to €1,050 must be provided.
Financial Assets Held to Negotiate
Financial assets classified as held to negotiate are initially valued at the fair value of the consideration given, not including directly attributable transaction costs.
Financial Assets Available for Sale
Financial assets available for sale are initially valued in the same way as investments held until maturity.
Remuneration of Financial Assets
Interest must always be recognized using the effective interest rate method.
Financial Assets Classified as Held Until Maturity
If financial assets classified as held until maturity are sold before maturity without cause, the company cannot re-classify assets in this category for a period of two years.
Real Estate Investments
Real estate investments include land and buildings that the company does not use in its business operations.
Accounting Entries for Sales Refund
The following accounting entries relate to a refund of sales:
- 100 708. Sales Returns
- 16 477. VAT Passed
- 430. Clients 116