Fixed assets of are a permanent nature with which the business is carried on and which are held for earning income and not for re-sale in the ordinary course of the business.
Verification and Valuation of Fixed Assets Fixedassets of are a permanent nature with which the business is carried on andwhich are held for earning income and not for re-sale in the ordinary course ofthe business. It is a long-term tangible property that a firm owns and uses inits operations to generate income. Fixed assets are not converted into cash orconsumed within a year. They are also called as Capital Assets. Example: landand buildings, plant and machinery, furniture etc. These assets are to bevalued at cost price less total depreciation in their value by constant use.Additions by way of purchase and deletions by way of sales should be taken intoaccount.The mode of valuation of different types of assets differs dependingupon the nature of the business and the purpose for which the assets are held.Verification of Fixed Assets can be explained as follows: Landmeans a long -term asset that refers to the cost of real property exclusive ofthe cost of any constructed assets on the property. The value of land has anappreciated value and is not subject to depreciation. A building is anoncurrent or long-term asset which shows the cost of a building (excluding thecost of the land) . Buildings will be depreciated over their useful life of theasset. ·Classifiedinto two types Land andBuildings can further be classified as – A Freeholdproperty. B Leaseholdproperty (A) Freehold Property Aproperty which is free from hold (Possession/Rights) is called as freeholdproperty. This means that the property is free from the hold of anybody besidesthe owner who enjoys complete ownership. Auditor’s Duty
1. Land and Buildings
1. WhereFreehold property has been purchased, the auditor should examine the titledeeds e.g., purchase deed, certificate of registration, the broker’s note andauctioneer’s account etc., to verify the correct position.
2. When theproperty has been mortgaged, the auditor should obtain a certificate from themortgagee regarding the possession of title deed and outstanding amount ofloan.
3. Whenthe property has been acquired in the current year, then the cost may beverified with the help of the bank passbook. He should vouch all the paymentsmade in this connection.
4. Heshould see that the property account should be shown in the Balance Sheet atcost price including the legal and registration charges less depreciationup-to-date.
5. Heshould also see that a separate account for building and land on which it isconstructed is maintained. It is necessary because depreciation is provided forbuilding and not for the land.
(B) Leasehold Property
Leaseholdis an accounting term for an asset being leased. The asset is typicallyproperty such as a building or space in a building.
·The property which is on lease (rent).
·The property (plot/flat/villa/mall/ factories)which is leased by the landlord for a certain period of time to the lessee (tenant/leaseholder/renter/ occupant/dweller).
·The (tenants) have been given the right to useduring that specified time by the landlord.
·The ownership of the property returns to thelandlord when the lease comes to an end.
Auditor’s Duty
1. The auditor should verify this by inspecting thelease agreement or contract to find out value and duration. He should see thatthe terms and conditions of lease are properly complied with.
2. In caseproperty has been mortgaged, the auditor should obtain a certificate from themortgagee regarding the possession of title deed.
3. Wherethe leasehold property has been sub-let, the counter part of the tenant’sagreement should also be examined.
4. Theauditor should physically inspect the properties.
5. Theauditor should also note that proper provision has been made for depreciationof lease problem and for any possible claims arising there under.
2. Plant and Machinery
A plantis an asset with a useful life of more than one year that is used in producingrevenues in a business’s operations. Plant is recorded at cost and depreciationis reported during their useful life.
Auditor's Duty
1. When themachines are purchased in the current accounting period, the invoices and theagreement with the vendors should be verified.
2. Theauditor should ` examine the plant register in which particulars about thecost, records about sales, provision for depreciation, etc., are available.
3. Heshould prepare a list of each machine from the plant register and should getthe list certified by the works manager as he is not a technical person andtherefore he has to depend upon the advice of the works manager regarding theirvaluation, etc.
4. Heshould see that plant and machinery account is shown in the Balance Sheet at costless depreciation after making proper adjustment for purchases and sales duringthe year under audit.
5.In case any plant and machinery has beenscrapped, destroyed or sold, he should ascertain that the profit or lossarising thereon has been correctly determined.
A proforma of plant & machine register is given below
3. Furniture, Fixtures andFittings
They areitems of movable equipment that are used to furnish an office. Examples arechairs, desks, shelves, book cases, filing and other similar items.
Auditor's Duty
1. Verify Invoices: Whenassets have been acquired during thecurrent accounting period, the auditor should examine the purchase invoice ofthe dealers.
2. Verify Furniture Stock Register: He should verify furniture stock registerand ask the management to prepare an inventory to reconcile it with the stockregister.
3. Verify Schedule of Previous Year: Heshould compare furniture schedule of previous year with that of current year toascertain the existence, purchase or sales of asset during the year.
4. Disclosure of Profit or Loss on Sale: Heshould examine that any profit or loss on sale of furniture during the year isproperly disclosed in books of accounts.
VALUATION OF FIXED ASSETS
1.Valuationof Land: Land which does not havedepreciated value, is valued at cost price.
2.Valuationof Other Fixed Assets: Other fixed assets like Buildings, Plant,machinery, office equipment, furniture and fixtures should be valued at goingconcern value.
3.Depreciation:Auditor should ensure thatadequate amount of depreciation has been provided, taking into account theworking life and usage of the asset.
4.Disclosurein Balance Sheet: He shouldverify that furniture, fittings and fixtures are disclosed in Balance Sheet atcost less depreciation.
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