Tangible Fixed Assets and Leasing: Valuation and Accounting
Tangible Fixed Assets
Initial Assessment
Tangible assets are measured at the purchase price or production cost. Indirect taxation of these goods will only be included in the purchase price or production cost if they are not recoverable.
The initial estimate of the present value of obligations associated with decommissioning, such as costs of remediation of the site on which it stands, will be part of the value of the property, provided that such requirements will lead to registration in accordance with the provisions exception to the rule applicable to them. Fixed assets requiring more than a year to be ready for use will include financing costs in the purchase price or production cost.
Purchase Price
It is the amount billed by the seller after deducting any discount or rebate and adding all additional costs.
Cost of Production
The production cost is calculated by adding the purchase price of raw materials and other consumables. Costs incurred during the manufacturing or construction period will also be added.
Barter Transactions (Permutas)
An item of tangible fixed assets acquired through barter is received in exchange for the delivery of non-monetary assets or a combination of non-monetary and monetary assets. In the case of commercial swaps, the asset will be valued at fair value. When the swap is not commercial, it is measured at book value.
Capital Contribution in Kind
Goods received by way of capital contribution in kind shall be valued at fair value at the time of the transfer.
Subsequent Valuation
Amortization
Amortization will be established taking into account the useful life of assets and their residual value, based on the reduction they experience due to their operation.
Impairment
Impairment occurs when the book value exceeds its recoverable amount.
Derecognition (Low)
Derecognition occurs when there is any disposition or when no future benefits are anticipated. The difference between the net disposal proceeds and the asset’s book value determines the profit or loss.
Leasing
Leasing is a financial transaction that takes the form of a lease and has seen major expansion in recent years.
Leasing Concept
It is a funding formula that allows companies needing capital goods to have access to them for a period of time through regular payment of a fee. After the transitional period, the tenant usually has three options:
- Return the assets to the leasing company.
- Agree to a new lease.
- Acquire the assets at their residual value.
Financial lease contracts will necessarily include a purchase option at the end for the user.
Types of Contracts
The main types are financial leasing and operating leasing.
- Financial Leasing: This is a lease with a purchase option. The company that needs a particular piece of equipment identifies the vendor, and once the purchase is agreed upon, they go to a leasing company. This company buys the assets and then leases them with a purchase option, aiming to obtain a benefit from providing a financial service.
- Operating Leasing: This is typically offered by manufacturers, distributors, and importers, providing customers with an alternative financing method through a lease. The property remains with the lessor, but the lessee may terminate the contract at any time; therefore, it is a revocable contract.
Other Arrangements
Other modalities are renting and lease-back.
- Renting: In renting, the company owning the property leases it out for a calculated fee. In this type of contract, the tenant only has the option to return the leased equipment or to arrange a lease extension.
- Lease-back: In a lease-back arrangement, the owner sells a particular asset to the leasing company and then leases it back from the same vendor, typically with a purchase option.