State of knowlage in the field.The theoretical and thematic study references

INTRODUCTION

In terms of economic behavior and their material structures, assets are grouped into:

1. tangible

2. intangible assets

3. Financial assets

IAS16 Tangible assets are defined as tangible items which  is  owned  by  a  unit to be

used  in the production of goods or provision of services to be rented to third parties or  used

for administrative purposes and can be used over several periods of management.

These assets are knows as the tangible assets , tangible or physical  assets.  

Defined by IAS38 Intangible assets (intangible assets) as identifiable assets , monetary ,

and held without support material for use in the production process or service to be rented to

third parties or administrative needs.

          In terms of area in which it is used, the fixed assets are classified in manufacturing fixed

assets, participating directly or indirectly to the production process or operating fixed assets

usedfor social marketing.

Fixed assets, also known as a non-current asset or as property, plant, and

equipment (PP&E), is a term used in accounting for assets and property which cannot easily be

converted into cash. This can be compared with current assets such as cash or bank accounts,

which are described as liquid assets. In most cases, only tangible assets are referred to as

fixed.My paper work will reach the subject of tangible fixed assets referred as fixed assets only.

These are items of value which the organization has bought and will use for an extended

period of time; fixed assets normally include items such as land and buildings, motor

vehicles, furniture, office equipment, computers, fixtures and fittings, and plant and machinery.

These often receive favorable tax treatment (depreciation allowance) over short-term assets.

According to International Accounting Standard (IAS) 16, Fixed Assets are assets whose future

economic benefit is probable to flow into the entity, whose cost can be measured reliably.

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Tangible assets represent assets that:

are owned by an entity to be used in the production of goods orprovision of

services, for rental to others or for administrative purposes, and

are used for a period exceeding one year

  Tangible assets include: land and buildings, technical installations and machinery, other

machinery , equipment and furniture, advances tosuppliers of fixed assets tangible  and

intangible assets in progress.

 Land and buildings are separable assets and are accounted for separately, even when

purchased  together. An increase in land value that is a building does not affect the

determination of the depreciable valueof the building. 

A tangible asset should be recognized initially measured at cost or determined under the

rules of assessment of these regulations, according to how to enter the body.

Where a building is demolished to make way for another , spending demolition are

recognized by their nature , without being considered planning costs site.That also applies to

accounting treatment of the cost of depreciation value of the building demolished.

It is pertinent to note that the cost of a fixed asset is its purchase price, including import

duties and other deductible trade discounts and rebates. In addition, cost attributable to bringing

and installing the asset in its needed location and the initial estimate of dismantling and

removing the item if they are eventually no longer needed on the location.

The primary objective of a business entity is to make profit and increase the wealth of

its owners. In the attainment of this objective it is required that the management will exercise

due care and diligence in applying the basic accounting concept of “Matching Concept”.

Matching concept is simply matching the expenses of a period against the revenues of the same

period.

The use of assets in the generation of revenue is usually more than a year- that is long

term. It is therefore obligatory that in order to accurately determine the net income or profit for

a period depreciation is charged on the total value of asset that contributed to the revenue for

the period in consideration and charge against the same revenue of the same period. This is

essential in the prudent reporting of the net revenue for the entity in the period.

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Net book value of an asset is basically the difference between the historical cost of that

asset and it associated depreciation.Apart from the fact that it is enshrined in Standard

Accounting Statement (SAS) 3 and IAS 16 that value of asset should be carried at the net book

value, it is the best way of consciously presenting the value of assets to the owners of the

business and potential investor.

How should the changing value of a fixed asset be reflected in a company's

accounts?

The benefits that a business obtains from a fixed asset extend over several years. For

example, a company may use the same piece of production machinery for many years, whereas

a company-owned motor car used by a salesman probably has a shorter useful life.

By accepting that the life of a fixed asset is limited, the accounts of a business need to

recognise the benefits of the fixed asset as it is "consumed" over several years.

This consumption of a fixed asset is referred to as depreciation.

There are 3 categories od depreciable fixed assets:

Property

Plant ,animals, means of transport

Ecquipment, furniture

What is the Useful Life of a fixed asset?

An asset may be seen as having a physical life and an economic life.Most fixed assets

suffer physical deterioration through usage and the passage of time. Although care and

maintenance succeed in extending the physical life of an asset, typically it will, eventually,

reach a condition where the benefits have been exhausted.

However, a business may not wish to keep an asset until the end of its physical life.

There may be a point when it becomes uneconomic to continue to use the asset even though

there is still some physical life left.

The economic life of the asset will be determined by such factors as technological

progress and changes in demand. For purposes of calculating depreciation, it is the estimated

economic life rather than the potential physical life of the fixed asset that is used.

What about the Residual Value of a fixed asset?

At the end of the useful life of a fixed asset the business will dispose of it and any

amounts received from the disposal will represent its residual value. This, again, may be

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difficult to estimate in practice. However, an estimate has to be made. If it is unlikely to be a

significant amount, a residual value of zero will be assumed.

The cost of a fixed asset less its estimated residual value represents the total amount to

be depreciated over its estimated useful life.

Accounts for fixed assets211 Freehold land and land improvements

2111 Freehold land

2112 Land improvements

212 Buildings

213 Plant and machinery, motor vehicles, animals and plantations

2131 Plant and machinery

2132 Measurement, control and adjustment devices

2133 Motor vehicles

2134 Animals and plantations

214 Fixtures and fittings

281 Depreciation of tangible assets

EVALUATION OF FIXED ASSETS

Fixed assets are assets that generate future economic benefits and held for more than  a

year. They should be valued at cost or production cost, in compliance with sections 68 and 70

in OMFP 3055/2009.Future economic benefit  is the potential to contribute directly or

indirectly , the flow of cash or cash equivalents to the entity. Potential can be a  productive ,  as

part of the entity's operating activities.

 How fixed assets are valued, at historical cost or replacement cost? Historical cost

gives only the cost at which it was purchased whereas replacement cost gives us the cost that

will be incurred to actually purchase the machine in the present year?

 Fixed assets are valued at cost less depreciation if they put to use regularly, i.e., in the

normal course of business.

2. If the asset is acquired in exchange of securities, the Fair Value (FV) securities. If

that is not ascertainable, the FV of asset is acquired.

3. If the asset is acquired in exchange of another asset, the FV of the asset given up. If

that is not ascertainable, the FV of asset acquired.

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The value of asset-based analysis of a business is equal to the sum of its parts. That is

the theory underlying the asset-based approaches to business valuation. The asset approach to

business valuation is based on the principle of substitution: no rational investor will pay more

for the business assets than the cost of procuring assets of similar economic utility. In contrast

to the income-based approaches, which require the valuation professional to make subjective

judgments about capitalization or discount rates, the adjusted net book value method is

relatively objective. Pursuant to accounting convention, most assets are reported on the books

of the subject company at their acquisition value, net of depreciation where applicable. These

values must be adjusted to fair market value wherever possible. The value of a company’s

intangible assets, such as goodwill, is generally impossible to determine apart from the

company’s overall enterprise value. For this reason, the asset-based approach is not the most

probative method of determining the value of going business concerns. In these cases, the asset-

based approach yields a result that is probably lesser than the fair market value of the business.

In considering an asset-based approach, the valuation professional must consider whether the

shareholder whose interest is being valued would have any authority to access the value of the

assets directly. Shareholders own shares in a corporation, but not its assets, which are owned by

the corporation. A controlling shareholder may have the authority to direct the corporation to

sell all or part of the assets it owns and to distribute the proceeds to the shareholder(s). The

non-controlling shareholder, however, lacks this authority and cannot access the value of the

assets. As a result, the value of a corporation's assets is rarely the most relevant indicator of

value to a shareholder who cannot avail himself of that value. Adjusted net book value may be

the most relevant standard of value where liquidation is imminent or ongoing; where a

company earnings or cash flow are nominal, negative or worth less than its assets; or where net

book value is standard in the industry in which the company operates. None of these situations

applies to the Company which is the subject of this valuation report. However, the adjusted net

book value may be used as a “sanity check” when compared to other methods of valuation,

such as the income and market approaches.

How Accountants Value Assets

The assets of a firm are measured and reported on in a firm’s balance sheet. In general,

the assets of a firm can be categorized into fixed assets, current assets, intangible assets and

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financial assets. There seem to be three basic principles that underlie how accountants measure

asset value:

An Abiding Belief in Book Value as the Best Estimate of Value : Accounting

estimates of asset value begin with the book value, and unless a substantial reason to do

otherwise is given, the historical cost is viewed as the best estimate of the value of an asset.

A Distrust of Market or Estimated Value :  When a current market value exists

for an asset that is different from the book value, accounting convention seems to view this

market value with suspicion. The market price of an asset is often viewed as both much too

volatile and easily manipulated to be used as an estimate of value for an asset. This suspicion

runs even deeper when values are estimated for an asset based upon expected future cash flows.

It is better to under estimate value than over estimate it : When there is more

than one approach that can be used to value an asset, accounting convention seems to take the

view that the more conservative (lower) estimate of value should be used rather than the less

conservative (higher) estimate of value. Thus, when both market and book value are available

for an asset, accounting rules often require that you use the lesser of the two numbers.

Item Principales governing measurement Measurement Issues

Fixed Asets Fixed assets refer to tangible assets with long lives. Generally accepted accounting principles in the United States require the valuation of fixed assets at historical costs, adjusted for any estimated loss in value from the aging of these assets. The loss in value is called depreciation.

The accounting depreciation of an asset follows mechanistic rules — straight line (where an equal amount is written off each year) or accelerated. It bears no resemblance to economic depreciation. In the presence of inflation, the use of historical cost can result in significant under valuation of older fixed assetsThe asset value has little or no relationship to the earning power of the asset.

Tangible assets entails, on one hand, knowledge of the situation  of these assets in

terms of contribution to the revenue streams generated by the enterprise, and on the other

hand,estimating the appropriate methods, depending on the evaluator's position,

observing those assets as operating in or outside exploitation.

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REEVALUATIONIn finance, a revaluation of fixed assets is a technique that may be required to

accurately describe the true value of the capital goods a business owns. This should be

distinguished from planned depreciation, where the recorded decline in value of an asset is tied

to its age.

Fixed assets are held by an enterprise for the purpose of producing goods or rendering

services, as opposed to being held for resale in the normal course of business. For

example, machines, buildings, patents or licenses can be fixed assets of a business.

The purpose of a revaluation is to bring into the books the fair market value of fixed

assets. This may be helpful in order to decide whether to invest in another business. If a

company wants to sell one of its assets, it is revalued in preparation for sales negotiations.

Reasons for revaluation

It is common to see companies revaluing their fixed assets. It is important to make the

distinctions between a 'private' revaluation to a 'public' revaluation which is carried out in the

financial reports. The purposes are varied:

a) To show the true rate of return on capital employed.

b) To conserve adequate funds in the business for replacement of fixed assets at the end

of their useful lives. Provision for depreciation based on historic cost will show

inflated profits and lead to payment of excessive dividends.

c) To show the fair market value of assets which have considerably appreciated since

their purchase such as land and buildings.

d) To negotiate fair price for the assets of the company before merger with

or acquisition by another company.

e) To enable proper internal reconstruction, and external reconstruction.

f) To issue shares to existing shareholders (rights issue) or for an external issue of

shares (public issue of shares).

g) To get fair market value of assets, in case of sale and leaseback transaction.

h) When the company intends to take a loan from banks/financial institutions by

mortgaging its fixed assets. Proper revaluation of assets would enable the company to get a

higher amount of loan.

i) Sale of an individual asset or group of assets.

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j) In financial firms revaluation reserves are required for regulatory reasons. They are

included when calculating a firm's funds to give a fairer view of resources. Only a portion of

the firm's total funds (usually about 20%) can be loaned or in the hands of any

one counterparty at any one time(Large Exposure Regulations).

k) To decrease the 'leverage ratio' (the ratio of debt to equity).

Under the revaluation model, revaluations should be carried out regularly, so that the

carrying amount of an asset does not differ materially from its fair value at the balance sheet

date.

If an item is revalued, the entire class of assets to which that asset belongs should be

revalued. Revalued assets are depreciated in the same way as under the cost model

Current market price (CMP)

Land values can be estimated by using recent prices for similar plots of land sold in the

area. However, certain adjustments will have to be made for the plus and minus points of the

land possessed by the company. This may be done with the assistance of brokers and agencies

dealing in land, or by a licensed appraiser.

Buildings values can be estimated by a realtor (real estate dealer) or Chartered

Surveyor (in the UK) in a similar manner to land.

Plant & Machinery): The CMP can be obtained from suppliers of the assets concerned.

However, with efflux of time, many earlier brands are not available in the market due to closure

of companies manufacturing them. Similarly, there is change in the models manufactured by a

company from time to time. Comparison of assets to most similar types available for sale, new

or used, can provide an estimate of value.

CMP of an asset ‘n’ years old = (CMP of new asset/useful life of asset)*(useful life of

asset –n).

Appraisal Method

Under this method, technical experts are called in to carry out a detailed examination of

the assets with a view to determining their fair market value. Proper appraisal is necessary

when the company is taking out an insurance policy for protection of its fixed assets. It ensures

that the fixed assets are neither over-insured nor under-insured. The factors which are

considered in determining the value of an asset, are as follows:

a) Date of purchase.

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b) Extent of use i.e. single shift, double shift, triple shift.

c) Type of asset. Whether the asset is a general purpose or special purpose asset?

d) Repairs & Maintenance policy of the enterprise.

e) Availability of spares in the future, mainly in the case of imported machines.

f) Future demand for the product manufactured by an asset.

g) If the asset is part of a bigger fixed asset, the life of the latter is crucial.

f) To have the true value for the assets

Selective Revaluation and why it should be avoided

Selective revaluation can be defined as revaluation of specific assets within a class or all

assets within a specific location.

A manufacturing company may have its manufacturing facilities spread over different

locations. Suppose it decides to undertake a revaluation of its plant & machinery. Selective

revaluation will mean revaluing specific assets (such as boiler, heater, central air-conditioning

system) at all locations, or revaluing all items of Plant & Machinery at a particular location

only. Such revaluation will lead to unrepresentative amounts being shown in the Fixed Assets

Register (FAR). In case of revaluation of specific assets of a class, while some assets will be

shown at a revalued amount others will be shown at historic cost. The same will happen in case

of revaluation of all assets of plant & machinery at a particular location only.

It does not sound logical and correct to value fixed assets using different bases.

Similarly, depreciation on such assets too will be faulty.

Important Points

1. The increase in value of fixed assets because of revaluation of fixed assets is

credited to ‘Revaluation Reserve’, and is not available for distribution as dividend. Revaluation

Reserve is treated as a Capital Reserve.

2. The increase in depreciation arising out of revaluation of fixed assets is debited to

revaluation reserve and the normal depreciation to Profit and Loss account.

3. Selection of the suitable method of revaluation is extremely important. The most

used method is the appraisal method. Methods such as indexation, and reference to current

market prices are also used. However, when these methods are used they are crosschecked with

the values arrived at by using the appraisal method.

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4. When any asset, which is revalued, is sold, the part of loss resulting due to

revaluation is debited to the ‘Revaluation Reserve’.

5. When assets are revalued, every Balance Sheet shall show for a specified period

of years, the amount of increase / decrease made in respect of each class of assets. Similarly,

the increased / decreased value shall be shown in place of the original cost.

6. In case of assets such as land and buildings, revaluation is desirable as their value

increases over time and is carried out every 3 to 5 years. In case of plant & machinery,

revaluation is carried out only if there is a strong case for it. In case of assets such as vehicles,

furniture & fittings, office equipments etc., revaluation is not carried out.

7. Revaluation should not result in the net book value of an asset exceeding its

recoverable value.

8. Revaluation does not mean only an upward revision in the book values of the

asset. It can also mean a downward revision (also called impairment) in the book values of the

assets. However, any downward revision in the book values of the assets is immediately written

off to the Profit & Loss account.

9. On upward revaluation of a fixed asset, which has been previously subject to

downward revaluation, the amount of upward revaluation as is equal to the amount expensed

previously is credited to the Profit & Loss a/c.

Example: Machinery ‘A’ is purchased on 01-04-1999 for $ 100,000/-. It is depreciated

using Straight Line Method at the rate of 10%.

PARTICULARS First Revaluation Second Revaluation

Nature of Revaluation downward upward

Date of Revaluation 01-04-2001 01-04-2004

Gross Cost 100,000 93,750

Less: Depreciation 20,000 46,875

Net Book Value 80,000 46,875

Revalued - Appraisal Method 75,000 55,000

Increase / (Decrease) in Net Book Value (5,000) 8,125

Debit to Profit & Loss a/c 5,000 0

Credit to Profit & Loss a/c 0 5,000

Credit to Revaluation Reserve 0 3,125

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DEPRECIATION OF FIXED ASSETS

Financial Reporting Standard 15 (covering the accounting for tangible fixed assets)

defines depreciation as follows:

“the wearing out, using up, or other reduction in the useful economic life of a

tangible fixed asset whether arising from use, effluxion of time or obsolescence through

either changes in technology or demand for goods and services produced by the asset.”

Depreciation is usually spread over the economic useful life of an asset because it is

regarded as the cost of an asset absorbed over its useful life. Invariably the depreciation

expense is charged against the revenue generated through the use of the asset. The method of

depreciation to be adopted is best left for the management to decide in consideration to the

peculiarity of the business, prevailing economic condition of the assets and existing accounting

guideline and principles as implied in the organizational policies.

It is worth noting that not all fixed assets depreciate in value year-over-year. Land and

buildings, for example, may often increase in value depending on local real-estate conditions.[1]

A long-term tangible piece of property that a firm owns and uses in the production of its

income and is not expected to be consumed or converted into cash any sooner than at least one

year's time.

Fixed assets are sometimes collectively referred to as "plant".

Depreciation refers to two very different but related concepts:

1. the decline in value of assets (fair value depreciation), and

2. the allocation of the cost of assets to periods in which the assets are used

(depreciation with the matching principle).

The former affects values of businesses and entities. The latter affects net income.

Generally the cost is allocated, as depreciation expense, among the periods in which the asset is

expected to be used. Such expense is recognized by businesses for financial reporting and tax

purposes. Methods of computing depreciation may vary by asset for the same business.

Methods and lives may be specified in accounting and/or tax rules in a country. Several

standard methods of computing depreciation expense may be used, including fixed percentage,

straight line, and declining balance methods. Depreciation expense generally begins when the

asset is placed in service. Example: a depreciation expense of 100 per year for 5 years may be

recognized for an asset costing 500.

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In determining the profits (net income) from an activity, the receipts from the activity

must be reduced by appropriate costs. One such cost is the cost of assets used but not currently

consumed in the activity. Such costs must be allocated to the period of use. The cost of an asset

so allocated is the difference between the amount paid for the asset and the amount expected to

be received upon its disposition. Depreciation is any method of allocating such net cost to those

periods expected to benefit from use of the asset. The asset is referred to as a depreciable asset.

Depreciation is a method of allocation, not valuation.

Any business or income producing activity using tangible assets may incur costs related

to those assets. Where the assets produce benefit in future periods, the costs must be deferred

rather than treated as a current expense. The business then records depreciation expense as an

allocation of such costs for financial reporting. The costs are allocated in a rational and

systematic manner as depreciation expense to each period in which the asset is used, beginning

when the asset is placed in service. Generally this involves four criteria:

cost of the asset,

expected salvage value, also known as residual value of the asset,

estimated useful life of the asset, and

a method of apportioning the cost over such life.

When a depreciable asset is sold, the business recognizes gain or loss based on net basis

of the asset. This net basis is cost less depreciation.

Impairment

Accounting rules also require that an impairment charge or expense be recognized if the

value of assets declines unexpectedly. Such charges are usually nonrecurring, and may relate to

any type of asset.  an asset is impaired when its carrying amount exceeds its recoverable

amount

Carrying amount: the amount at which an asset is recognised in the balance sheet after

deducting accumulated depreciation and accumulated impairment losses

Recoverable amount: the higher of an asset's fair value less costs to sell (sometimes

called net selling price) and its value in use

Fair value: the amount obtainable from the sale of an asset in an arm's length transaction

between knowledgeable, willing parties

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Value in use: the discounted present value of the future cash flows expected to arise

from:

the continuing use of an asset, and from

its disposal at the end of its useful life

IAS 36 requires impairment testing and, if necessary, recognition for property, plant,

and equipment. An item of property, plant, or equipment shall not be carried at more than

recoverable amount. Recoverable amount is the higher of an asset's fair value less costs to sell

and its value in use.

Any claim for compensation from third parties for impairment is included in profit or

loss when the claim becomes receivable.

Historical cost.Depreciation is generally recognized under historical cost systems of

accounting. Historical cost is the original cost of the asset at which it was purchased plus

additional costs incurred on the asset to bring it in working condition. Sometimes, the

management of the business, if it thinks fit, revalues the asset to present it at current market

value. Once the asset is revalued to its market value, then its value has to be constantly

monitored to reflect the changes in the market value

Gross book value of a fixed asset is its historical cost or other amount substituted for

historical cost in the books of account or financial statements. When this amount is shown net

of accumulated depreciation,it is termed as net book value.

Accumulated depreciation

While depreciation expense is recorded on the income statement of a business, its

impact is generally recorded in a separate account and disclosed on the balance sheet as

accumulated depreciation, under fixed assets, according to most accounting principles.

Accumulated depreciation is known as a contra account, because it separately shows a negative

amount that is directly associated with another account.

Without an accumulated depreciation account on the balance sheet, depreciation

expense is usually charged against the relevant asset directly. The values of the fixed assets

stated on the balance sheet will decline, even if the business has not invested in or disposed of

any assets. The amounts will roughly approximate fair value. Otherwise, depreciation expense

is charged against accumulated depreciation. Showing accumulated depreciation separately on

the balance sheet has the effect of preserving the historical cost of assets on the balance sheet.

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If there have been no investments or dispositions in fixed assets for the year, then the values of

the assets will be the same on the balance sheet for the current and prior year.

METHODS OF DEPRECIATION

There are several methods for calculating depreciation, generally based on either the

passage of time or the level of activity (or use) of the asset.

Straight-line depreciation.Straight-line depreciation is the simplest and most-often-

used technique, in which the company estimates the salvage value of the asset at the end of the

period during which it will be used to generate revenues (useful life) and will expense a portion

of original cost in equal increments over that period. The salvage value is an estimate of the

value of the asset at the time it will be sold or disposed of; it may be zero or even negative.

Salvage value is also known as scrap value or residual value.

Straight-line method:

Book value at the beginning of the first year of depreciation is the original cost of the

asset. At any time book value equals original cost minus accumulated depreciation.

book value = original cost − accumulated depreciation Book value at the end of year

becomes book value at the beginning of next year. The asset is depreciated until the book value

equals scrap value.

If the vehicle were to be sold and the sales price exceeded the depreciated value (net

book value) then the excess would be considered a gain and subject to depreciation recapture.

In addition, this gain above the depreciated value would be recognized as ordinary income by

the tax office. If the sales price is ever less than the book value, the resulting capital loss is tax

deductible. If the sale price were ever more than the original book value, then the gain above

the original book value is recognized as a capital gain.

Declining-balance method (or Reducing balance method).Depreciation methods that

provide for a higher depreciation charge in the first year of an asset's life and gradually

decreasing charges in subsequent years are called accelerated depreciation methods. This may

be a more realistic reflection of an asset's actual expected benefit from the use of the asset:

many assets are most useful when they are new. One popular accelerated method is

the declining-balance method. Under this method the book value is multiplied by a fixed rate.

annual depreciation = depreciation rate * book value at beginning of year

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The most common rate used is double the straight-line rate. For this reason, this

technique is referred to as the double-declining-balance method. When using the double-

declining-balance method, the salvage value is not considered in determining the annual

depreciation, but the book value of the asset being depreciated is never brought below its

salvage value, regardless of the method used. The process continues until the salvage value or

the end of the asset's useful life, is reached. In the last year of depreciation a subtraction might

be needed in order to prevent book value from falling below estimated Scrap Value.

Since double-declining-balance depreciation does not always depreciate an asset fully

by its end of life, some methods also compute a straight-line depreciation each year, and apply

the greater of the two. This has the effect of converting from declining-balance depreciation to

straight-line depreciation at a midpoint in the asset's life.

It is possible to find a rate that would allow for full depreciation by its end of life with

the formula:

,

where N is the estimated life of the asset (for example, in years).

Activity depreciation.Activity depreciation methods are not based on time, but on a

level of activity. This could be miles driven for a vehicle, or a cycle count for a machine. When

the asset is acquired, its life is estimated in terms of this level of activity.

Sum-of-years' digits method’.Sum-of-years' digits is a depreciation method that results

in a more accelerated write-off than straight line, but less than declining-balance method.

Under this method annual depreciation is determined by multiplying the Depreciable Cost by a

schedule of fractions.

depreciable cost = original cost − salvage value

book value = original cost − accumulated depreciation

Units-of-production depreciation method.Under the units-of-production method,

useful life of the asset is expressed in terms of the total number of units expected to be

produced:

Depreciation stops when book value is equal to the Scrap Value of the asset. In the end

the sum of accumulated depreciation and scrap value equals to the original cost.

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Units-of-production depreciation method.Under the units-of-production method,

useful life of the asset is expressed in terms of the total number of units expected to be

produced:

Depreciation stops when book value is equal to the Scrap Value of the asset. In the end

the sum of accumulated depreciation and scrap value equals to the original cost.

Units of time depreciation.Units of time depreciation is similar to units of production,

and is used for depreciation equipment used in mine or natural resource exploration, or cases

where the amount the asset is used is not linear year to year.

A simple example can be given for construction companies, where some equipment is

used only for some specific purpose. Depending on the number of projects, the equipment will

be used and depreciation charged accordingly.

Group depreciation method.Group depreciation method is used for depreciating

multiple-asset accounts using straight-line-depreciation method. Assets must be similar in

nature and have approximately the same useful lives.

Composite depreciation method.The composite method is applied to a collection of

assets that are not similar, and have different service lives. For example, computers and printers

are not similar, but both are part of the office equipment. Depreciation on all assets is

determined by using the straight-line-depreciation method.

Depreciation expense equals the composite depreciation rate times the balance in the

asset account (historical cost). Debit depreciation expense and credit accumulated depreciation.

When an asset is sold, debit cash for the amount received and credit the asset account

for its original cost. Debit the difference between the two to accumulated depreciation. Under

the composite method no gain or loss is recognized on the sale of an asset. Theoretically, this

makes sense because the gains and losses from assets sold before and after the composite life

will average themselves out.

To calculate composite depreciation rate, divide depreciation per year by total historical

cost. To calculate depreciation expense, multiply the result by the same total historical cost.

The result, not surprisingly, will equal to the total depreciation Per Year again.

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Common sense requires depreciation expense to be equal to total depreciation per year,

without first dividing and then multiplying total depreciation per year by the same number.

Accelerated depreciation refers to any one of several methods by which a company,

for 'financial accounting' and/or tax purposes,depreciates a fixed asset in such a way that the

amount of depreciation taken each year is higher during the earlier years of an asset’s life. For

financial accounting purposes, accelerated depreciation is generally used when an asset is

expected to be much more productive during its early years, so that depreciation expense will

more accurately represent how much of an asset’s usefulness is being used up each year.

For financial reporting purposes, the two most popular methods of accelerated depreciation are

the declining balance method and the sum-of-the-years’ digits method.

Asset Adjustment and Modifications

Asset Management (AM) provides users with the ability to track quantity and cost

adjustments to assets. Any financial changes to an asset will have an impact on the

depreciation amount recorded in both the Asset Management and General Ledger modules.

The system will maintain the history of adjustments to assets and create accounting entries

accordingly.

Identify the Need to Enter an Adjustment

Asset adjustments may be necessary due to errors during entry or because betterments

have been made to existing assets. The Agency Asset Manager will determine when an asset

needs to have an adjustment recorded. The following adjustments to an asset can be entered

into the system:

Add a new cost row.

Adjust total cost by percentage or cost amount.

Adjust total quantity.

Adjust cost or quantity by cost row.

Adjust cost for each cost row.

Adjust quantity for each cost row.

Enter Cost Adjustment

The Asset Specialist will be responsible for entering the adjustment transaction in AM

using the Cost Adjust/Transfer Asset page to record the transaction. The Specialist will enter

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the new adjustment information for the asset that focuses on one of four actions: addition,

adjustment, revaluation and recategorization.

An addition indicates that an asset was enhanced in some way. The Specialist will enter

the cost, quantity and chartfield information pertaining to the enhancement of the asset. The

Specialist has the ability to ‘Adjust All Rows By’ a fixed percent, quantity, or cost.

An adjustment designates that a data entry error may have been made when an asset

was created.

Revaluation indicates that the value of an asset has changed perhaps because of a

change in accounting principles. The Specialist has the ability to adjust the quantity, cost, or

cost type with the revaluation selection.

Process the Asset.Recategorizing an asset affects depreciation. Because of this, both

the depreciation and accounting entry processes will need to be run after the transaction is

saved.

Review the Adjustment.The Asset Manager will verify the results of the adjustments

using the Asset Cost History page to confirm that the adjustment was recorded correctly.

Asset acquisitions are initially recorded at their original cost. Although an allowance for

depreciation is reflected against most assets, no attempt is made to adjust these historical costs

to current market values. This is called the historical cost principle.

The failure to adjust fixed assets for changes in market value may, to a certain extent,

impair the usefulness of the balance sheet. Recall that the balance sheet attempts to reflect the

financial condition of the business by listing the values of the firm’s assets, liabilities and

equity at the end of the accounting period. Most readers of the balance sheet would hope that

the values reflected are at least close to current market values. Current market value is the

amount that would be realized if the asset were sold. If the values associated with various fixed

assets do not reflect current market values, the balance sheet provides a less than accurate

portrayal of economic condition.

The extent of the balance sheet distortion caused by the historical cost principle depends

upon the nature of a firm’s asset holdings. If the business does not hold many fixed assets or

the net depreciated values do not diverge too much from current market values, the distortion

will be minimal. However, significant distortions can occur if a business owns a significant

amount of real estate.

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Land is never depreciated. However, its current value is likely to deviate significantly

from its historical acquisition price. Improved real estate, such as office buildings and

warehouses, are depreciated, but their current market values may actually increase over time.

So if a business owns significant amounts of real property, the historical cost principle can

significantly distort the portrayal of its economic condition.

The historical cost principle is applied because accountants believe that distortions of

economic condition that involve understatement of asset values are preferable to distortions

caused by overstatements.

FIXED ASSETS INDICATORS

Companies rely on their assets, including fixed assets, to generate profits. Modern

equipment in good repair, for example, is essential for high productivity and efficiency, and

hence for profits. Fixed asset analysis involves calculating the earnings potential, use, and

useful life of fixed assets. In addition, fixed asset analysis determines if fixed assets are

sufficiently maintained to ensure current and future earning power as well as the relative

profitability contributed by fixed assets and fixed asset acquisitions.

A decrease in operational efficiency and productivity results from the improper or

inadequate maintenance of malfunctioning and inefficient assets as well as from the failure to

replace obsolete and irreparable assets. Asset analysis examines the age and condition of each

major asset category, as well as the costs of replacing old assets to determine the output levels,

downtime, and temporary discontinuances. The measure of efficiency involves the calculation

of these ratio:

Fixed asset acquisition to total assets

Repairs and maintenance to fixed assets

Repairs and maintenance to sales

Sales to fixed assets

Net income to fixed assets

Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value

of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets

to generate sales.

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Generally speaking, the higher the ratio, the better, because a high ratio indicates the

business has less money tied up in fixed assets for each unit of currency of sales revenue. A

declining ratio may indicate that the business is over-invested in plant, equipment, or other

fixed assets.

Capital asset.The term capital asset has three unrelated technical definitions, and is

also used in a variety of non-technical ways.

In financial economics, it refers to any asset used to make money, as opposed

to assets used for personal enjoyment or consumption. This is an important distinction because

two people can disagree sharply about the value of personal assets, one person might think a

sports car is more valuable than a pickup truck, another person might have the opposite taste.

But if an asset is held for the purpose of making money, taste has nothing to do with it, only

differences of opinion about how much money the asset will produce. With the further

assumption that people agree on the probability distribution of future cash flows, it is possible

to have an objective Capital asset pricing model. Even without the assumption of agreement, it

is possible to set rational limits on capital asset value.

In governmental accounting, it is defined as any asset used in operations with an

initial useful life extending beyond one reporting period. Generally, government managers have

a "stewardship" duty to maintain capital assets under their control. See International Public

Sector Accounting Standards for details.

In some income tax systems, gains and losses from capital assets are treated

differently than other income. Sale of non-capital assets, such as inventory or stock of goods

held for sale, generally is taxed in the same manner as other income. Capital assets generally

include those assets outside the daily scope of business operations, such as investment or

personal assets. The United States system defines a capital asset by exclusion. Capital assets

include all assets except inventory of supplies or property held for sale (including subdivided

real estate), depreciable property used in a business, accounts or notes receivable, certain

commodities derivatives and hedging items, and certain copyrights and similar property held by

the creator of the property. The United Kingdom has an even broader definition.

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Capital assets should not be confused with the capital a financial institution is required

to hold. This capital is computed from the right-hand side of the balance sheet while assets are

found on the left-hand side.

Return on asset(ROA). An indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its assets to generate

earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is

displayed as a percentage.Sometimes this is referred to as “return on investment”.The formula

for return on assets is:

Fixed assets to proprietor's fund ratio establishes the relationship between fixed

assets and shareholders funds.

The purpose of this ratio is to indicate the percentage of the owner's funds invested in

fixed assets.Formula:Fixed Assets to Proprietors Fund = Fixed Assets / Proprietors Fund

The fixed assets are considered at their book value and the proprietor's funds consist of

the same items as internal equities in the case of debt equity ratio.

The ratio of fixed assets to net worth indicates the extent to which shareholder's funds

are sunk into the fixed assets. Generally, the purchase of fixed assets should be financed by

shareholder's equity including reserves, surpluses and retained earnings. If the ratio is less than

100%, it implies that owners funds are more than fixed assets and a part of the working capital

is provide by the shareholders. When the ratio is more than the 100%, it implies that owners

funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders

to finance the fixed assets. There is no rule of thumb to interpret this ratio by 60 to 65 percent is

considered to be a satisfactory ratio in case of industrial undertakings.

Degree of Asset Depreciation is used to directly estimate the age of the fixed asset in

percentage terms. Average age in percentage equals accumulated depreciation divided by total

tangible assets at year end. It represents the proportion of the assets that have been depreciated:

1) the closer to 100%, the older the asset; 2) the closer to 0%, the newer the asset. A value close

to 100% may indicate an out-dated production technology. Should be considered in conjunction

with the industry's technological state of the art. Also depends on the company's write-down

policy.

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Degree of Asset Depreciation = (Depreciation of Tangible Assets) / (Tangible Assets at

Year End)

Renewed coefficient of fixed assets this coefficient allowes to assess  investment

efforts ,  the investment policy orientation:

investments to maintain productive capacity (when new purchasesare the outputs)

investment growth, increase production capacity of the company (additional

investment)

Renewed coefficient= acquisition value of new fixed assets/Tangible Assets at Year

End

Cost of Fixed AssetsA fixed asset is a physical item, such as a piece of equipment, a vehicle, or real

property.  These assets are shown at cost less accumulated depreciation (land is not

depreciated). This difference is called book value, which is not necessarily what the asset is

worth on the market (fair value). The assigned cost is the acquisition cost plus any expenses of

getting the asset to the entity and ready for its intended use.

Land would include closing costs, clearing, and grading as well as permanent special

assessments, such as pavements,street lights, and sewers. Improvements with a limited life,

such as driveways, fences, parking lots, would be charged(debited) to a land improvements

account and depreciated over the estimated useful lives. Building would include all

construction costs and permits. Building may also include some interest during construction.

Adding a cost to an asset is called capitalizing.

Capitalized Interest.If an asset is self constructed (built to your specifications), certain

interest may be capitalized to the asset rather than expensed during construction. This

capitalization continues until the asset is substantially ready for its intended use.The capitalized

interest is the lower of the actual interest cost incurred this period or the avoidable interest.

Avoidable interest is the amount that could have been avoided by not self constructing this

asset. Once interest is capitalized, it is added to the asset’s cost and is then depreciated over the

life of the asset.

The cost of an item of fixed asset comprises its purchase price, including import duties

and other non-refundable taxes or levies and any directly attributable cost of bringing the asset

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to its working condition for its intended use; any trade discounts and rebates are deducted in

arriving at the purchase price. Examples of directly attributable costs are:

site preparation;

initial delivery and handling costs;

installation cost, such as special foundations for plant; and

professional fees, for example fees of architects and engineers.

The cost of a fixed asset may undergo changes subsequent to its acquisition or

construction on account of exchange fluctuations, price adjustments,changes in duties or

similar factors.

Administration and other general overhead expenses are usually excluded from the cost

of fixed assets because they do not relate to a specific fixed asset. However, in some

circumstances, such expenses as are specifically attributable to construction of a project or to

the acquisition of a fixed asset or bringing it to its working condition, may be included as part

of the cost of the construction project or as a part of the cost of the fixed asset.

The expenditure incurred on start-up and commissioning of the project,including the

expenditure incurred on test runs and experimental production,is usually capitalised as an

indirect element of the construction cost. However,the expenditure incurred after the plant has

begun commercial production,i.e., production intended for sale or captive consumption, is not

capitalised

and is treated as revenue expenditure even though the contract may stipulate that the

plant will not be finally taken over until after the satisfactory completion If the interval between

the date a project is ready to commence commercial production and the date at which

commercial production actually begins is prolonged, all expenses incurred during this period

are charged to the profit and loss statement. However, the expenditure incurred during this

period is also sometimes treated as deferred revenue expenditure to be amortised over a period

not exceeding 3 to 5 years after the commencement.

Improvement Costs

Improvements costs are subsequent costs that are incurred by a business in increasing

the earning capability of a non-current asset or the costs incurred that improve the original

performance of the asset.

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For costs to be recognised as improvements, they should meet the normal criteria of an

asset. Therefore the business incurring the improvement costs should be able to demonstrate

that increased future economic benefits will flow into the business as a result. For example, the

costs will extend the useful life of the existing asset or will upgrade the asset to improve the

quality of products or the customer service experience. Some examples of improvements

include installing a new bathroom in a building that did not have one before or replacing single-

glazed windows with double-glazed windows.

Repairs or Maintenance Costs

Repair costs are subsequent costs incurred in restoring an asset to its original state or

costs incurred in maintaining assets so that the current earning capabilities are maintained.

Some examples of repairs and maintenance include replacing a damaged tire from a vehicle,

replacing a broken office or factory window, repainting a building and the costs of maintaining

the business’s plant and machinery. Repair costs will also include the costs incurred in

diagnosing and cost of professional services incurred in identifying or rectifying the problem

being repaired or redressed.

Repairs costs that has already been recognized should be added to the carrying

amount of the asset only when it is estimated that now when you get further future economic

benefits expected from theinitial performance as adequate.An example of this might

be purchasing a building that needs renovation. In this case costs are added to the accounting

value of the asset, to the extent that such expenses may be recovered from future use of it.

FIXED ASSETS presented in the financial statements

To present the state of or the changes in various plant and equipment assets, accountants

often prepare financial statements and schedules that plot out this information. These

statements include the dispositions of company property, plant, and equipment as well as the

acquisitions and divestitures of fixed assets. In preparation of these reports, accountants

generally determine the age and condition of the major fixed assets and the replacement cost of

them.

Provision for a permanent reducing in value of a fixed asset must be made in the profit

and loss account and the asset should be disclosed at the reduced amount in the balance sheet.

Any such provision should be disclosed on the face of the profit and loss account or by way of

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note. Where a provision becomes no longer necessary, because the conditions giving rise to it

have altered, it should be written back, and again disclosed should be made.

Fixed assets are purchased to be used for longer period. In the subsequent years, the

value of asset could be higher or lower than its present book value due to inflationary condition

of the economy.Assets are valued at Historical cost in the books of accountants.

Fixed asset expenditures must be “capitalized;” that is, they are listed as assets on the

balance sheet, as opposed to being expensed on the income statement.  Fixed assets are

considered non-current, and they are listed on the balance sheet at their historical costs.  

Fixed assets are “depreciated” over time, and “depreciation” is an expense that is listed on the

income statement.  Each period, a fixed asset receives some depreciation writedown until its

useful life is used up.  The length of time over which a fixed asset is depreciated very roughly

approximates its useful life. For example, a computer may be depreciated over five years, while

a building may be depreciated over twenty or even as many as forty years. The balance sheet

usually lists gross amounts of fixed assets (at historical cost) in categories such as “Office

Equipment,” “Vehicles,” and “Real Estate.”  The sum of these amounts represents “Gross

Fixed Assets.”  “Accumulated Depreciation” is typically listed next, consisting of the sum of all

depreciation expense, past and present. So, on the balance sheet, “Gross Fixed Assets” less

“Accumulated Depreciation” equals “Net Fixed Assets.”

In notes are found depreciation methods used , the value increases or decreases

resulting  from the assessment , estimating the lifetime of the assets , the carrying amount of

each  of  property,  plant and equipment that were included in the accounting financial

statements .Accounting policies regarding the estimated costs of restoration related to tangible

assets items.

Recording the effects of Revaluation of assets.If an asset is revalued at higher cost

than its original cost, the excess amount will be treated as profit on revaluation of fixed assets

and it is credited to Revaluation Reserve Account. On the other hand, if an asset is revalued at

lower cost than its original value, the balance amount will be treated as loss on revaluation of

fixed assets and it is shown in the profit & loss account of that year in witch asset was reveled.

Derecogniton (Retirements and Disposals).An asset should be removed from the

balance sheet on disposal or when it is withdrawn from use and no future economic benefits are

expected from its disposal. The gain or loss on disposal is the difference between the proceeds

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and the carrying amount and should be recognised in the income statement. If an entity rents

some assets and then ceases to rent them, the assets should be transferred to inventories at their

carrying amounts as they become held for sale in the ordinary course of business.

IAS 16 &IAS 36 vs. OMFP 3055/2009

Between IAS 16 and OMFP 3055/2009 are a lot of similarities.Eventhough Romanian

accounting was very different from the accounting standards that most of the european

countries use as a gide .From this point of view,we were isolated,but now because of our

integration in the European Community,we slowely, but surely,adjust our ways of keeping the

books and because of that our accountind standards shape around the international standards

eventhough we keep it with some differences.

Items IAS 16 OMFP 3055

Depreciatiom method IAS 16 provides 3 types of methods that can be used: straight line method “sum-of-years digits” method Declining-balance method

It provides four methods: straight line method Units-of-production depreciation method Declining method Accelerated method

Leasing contract of fixed assets

The cost of an asset(fixed asset) held by a tenant in a financial lease contract is determined based on the characteristics presentedin IAS 17

The cost of the asset can be accounted by the owner ither it’s a financial or operational lease contract

Tangible asset recognition criteria 

IAS 16 presents 7 criteria on witch we can recognize tangible assets

3055 OMPF shows no tangible asset recognition criteria mentioned but rather which groups of assets that must be considered by companies

Evaluation  rules  IAS 16 says that, if no active market, the company may use the models to determine fair value  (ie replacement cost model)

in1752 OMPF says that the assets for which there is no active market are estimated at  amortized  cost.

Residual value It defines residual value as the estimated value of the asset at the end of its useful life

In 3055 OMPF not define "residual value", so it pays full value of the assets

Depreciation in matters of cost

IAS 16 allowes the deduction of residual value deduction (if it can be estimated  reliably )  and discontinuation of depreciation when it exceeds the carrying value.

The entire cost of assets  is depreciated 

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Personal contributions. Draft improvement and deepening

My personal contribution is given by an application made in the case of the company

DB Schenker-Romtrans, wich is the subsidiary of DB Schenker,a logistic company bu also it

provides to the customer with the transportation of the merchandise by all means:land, sea and

air.

The regional experience within Romania combined with the most efficient land

transportation network in Europe is a strong combination. DB Schenker helds the number one

position in European Land Transport for years now. Thanks to this unique constellation of DB

Schenker and Romtrans your cargo will arrive at its destination exactly at the scheduled time.

On the right track ...

DB Schenker Romtrans has terminals in Oradea, Curtici, Arad, Timisoara, Cluj-

Napoca, Bucharest, Iasi, Galati and Constanza which all have their own train interconnections.

Even the Russian broad gauge is used at Iasi and Galati. These locations will be reinforced to

be used for logistics projects for downstream rail transportations.In the year 2008 alone, more

than 1 million tons were transported nationally and cross-border by the Romanian DB Schenker

subsidiary and Romtrans.

... to the Black Sea

The own transshipment terminal in the harbor Constanza on the Black Sea plays a key

logistical role for DB Schenker Romtrans. It acts as the interface for shipments between the

river Danube and the sea and also happens to be integrated within the Romanianland

transportation network. Steel, wood, cereals and project freight belong to the most important

transhipment goods in the harbor.

Prepared for your logistics needs

Optimal logistics processes and flexibility of costs are key-factors in the success of

many businesses. Rarely, however, does a logistics provider come with the relevant experience

coupled with the required storage capacity to put contract logistics concepts into practice like

DB Schenker Romtrans does it two times in Bucharest, Cluj, Arad and Timisoara. The entire

warehousing package including all required additional services is now an integral component of

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our service portfolio. Your logistics concepts are drafted by our logistics specialists step by step

with you. This cooperation guarantees the successful and reliable implementation of your

logistics concepts.

DB Schenker stands for the transportation and logistics activities of Deutsche

Bahn and has over 91,000 employees in some 130 countries. DB’s Transportation and

Logistics Division holds top positions worldwide in the industry.

 The logistics division of DB is the world’s second largest transportation and logistics

service provider based on sales and performance. In financial year 2010 the transportation and

logistics specialists generated revenues of around 18.9 billion euros, approximately 55 percent

of the DB Group’s revenues. Through its Transportation and Logistics Division, DB holds top

positions in global air and ocean freight and has Europe’s most extensive land transport

network and the rail expertise of Europe’s largest rail freight company.

With around 2,000 locations in the world’s most important economic regions, DB’s

logistics division has a global network geared toward customer service, quality and

sustainability. The transportation and logistics experts offer customers tailored, continuous and

cross-carrier door-to-door solutions as well as additional logistics solutions along the entire

value-added chain.

DB Schenker comprises the DB Schenker Rail and DB Schenker Logistics Business

Units. Following the 2010 economic downturn, DB Schenker is once again on the path to

growth and success in all areas – from rail to contract logistics.

Categories of Fixed Assets

12000 licences

21000 land

22000 constructii

23000 equipments

24000 camioane si motestivuitoare

24010 cars

24040 computers

24050 ecipamente de birou

24060 inventories < 1 800 lei

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25000 investment

26000 fixed assets in leasing

These accounts are actually accounts from the german accounting and because of

this,the code of each category of fixed assets are german accounts to exist a mutual

understanding between both german and Romanian accountants

Development of income

Year to 31 Dec 09 31 Dec 08 Change1

Item €000 €000 %

Total income 38 370 36 473 +5.2Operating income (3 046) (3 219) (–5.4)Cost of materials –18 544 –17 166 + 8.0Personnel expenses –10 583 – 9 913 + 6.8Other operating expenses – 2 723 – 2 795 – 2.6Total expenses – 35 777 – 33 578 + 6.5EBIT 2 593 2 895 –10.4Financial result –786 – 879 –10.6Profit before taxes on income 1 807 2 016 –10.4Taxes on income – 486 – 300 + 62Net profit for the year 1 321 1 716 – 23

Total income rose notably and was driven by the favorable development of

revenues.After making adjustments for the major acquisitions, total income rose by 2.1%, or €

768 million. Development of revenues, in particular, had a notable effect on the change .

Development of other operating income had a reverse impact and, after adjusting for major

acquisitions made, was even lower than the comparable same year-ago figure (€ –327 million).

This is especially due to the lower number of special items during the year under review. Last

year this figure still contained extensive effects of € 646 million arising from the sale of

holdings. Opposite effects were generated by: the sale of our holding in Arcor during the year

under review, which led to € 243 million in other operating income; and the sale of a holding in

1 The change is calculated as X 1−Xo

Xo∗100

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DB Schenker Rail Scandinavia with € 13 million, as well as the special item related to the

settlement of a conflict with the Frankfurt airport for € 56 million.

Increases in personnel expenses and the cost of materials reflect, in particular,burdens

arising from the wage settlement and the, on average, significantly higher costs for energy. In

addition, significant acquisitions made during the year under review also pushed expenses (€ –

498 million and € –361 million, respectively). After being adjusted, cost of materials rose by

5.1% and personnel expenses by 3.1%. Exchange rate effects noted in our international

business activities had a dampening impact on expenses in this area.

Depreciation taken during the year under review was slightly below the previous year’s

figure, although after adjustments for the major acquisitions made the decline was a bit higher

at 4.2%.

Other operating expenses noted for the year under review were higher than the previous

year’s level. The € 233 million recorded for this item was mainly due to changes arising from

major acquisitions made. After being adjusted, they remained at last year’s level.

The dynamic growth of volume sold noted by the domestic air transport segment in the

first half of 2009 in comparison to the same year-ago period was dampened by sharply rising

prices for aviation fuel and the shrinking economy in the second half.The pace of growth in the

low-price airlines segment decelerated significantly as these carriers responded to reduced

demand by restricting their offers and decommissioning aircraft.

BALANCE SHEET

Non-current assets were valued at € 42,353 million, or 0.7% (€ + 307 million) higher

than the value at the end of the previous year (as of December 31, 2009: € 42,046 million).

Property, plant and equipment remained at € 39,976 million (as of December 31, 2009: €

38,069 million). The increase was primarily driven by an increase in intangible assets (€ +124

million) due to taking over intangible assets and goodwill as part of acquisitions, and the share

of investments accounted for using the equity method (€ +124 million) due to the addition of

the companies to the scope of consolidation and the adjustment of the pro rata equity value.

Current assets moved in the opposite direction as their value declined as of December

31, 2008 by 9.9%, or € 643 million to € 5,840 million (as of December 31, 2009: € 6,483

million). This change was driven by the decline in cash and cash equivalents on hand (€ –670

million) due to the reduction of financial debt that took place during the year under review,

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lower trade receivables (€ –127 million ) especially due to the contraction noted for the DB

Schenker Logistics business unit. Structurally, this resulted in a slight shift towards non-current

assets. Major changes noted on the equity and liabilities side of the balance sheet during the

year under review were changes in equity and financial debt. Mainly due to the profit

development equity rose by 11.0 % or by € 1,202 million to € 12,155 million (as of December

31, 2007: € 10,953 million). The equity capital ratio increased correspond - ingly further to

25.2%. Non-current financial debt fell notably by 13.2 % or € 2,145 million as of December 31,

2010. Current financial debt moved in the opposite direction and grew by 51.0 % or € 936

million. However, total financial debt declined notably.Within the structure of our debt –

including the Federal Government’s interest-free loans shown for infrastructure financing – the

share of total assets represented by noncurrent liabilities declined correspondingly as of

December 31, 2010. In contrast, the percentage of current liabilities increased slightly as of

December 31, 2010.

Bucharest13%

Constanta11%

Arad30%

Oradea8%

Galati7%

Iasi3%

Giurgiu2%

Valea lui Mihai2%

MOL 1 CT SUD24%

Turnover

Turnover on different subsidiaries at the level of the country

31 | P a g e

2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 20000

5000

10000

15000

20000

25000

30000

35000

40000

Turnover

The evolution of turnover throughout the years

Employees

Employees by business unit 2008 2007 Change FTE (FULL-TIME EMPLOYEES) AS OF DEC 31 absolute %

31 Dec 09 31 Dec 08

DB Bahn Long-Distance 14 603 15 011DB Bahn Regional 25 084 24 781DB Bahn Urban 12 259 12 221DB Schenker Rail 29 242 28 067DB Schenker Logistics 074 59 605DB Services 24 911 26 808DB Netze Track 40 974 39 780DB Netze Stations 4 509 4 537DB Netze Energy 1 556 1 611Other 25 030 24 657DB Group 240 242 237 078

The number of employees is calculated on the basis of full-time employee (FTE)

positions to permit better comparability within DB Group and over time. Figures for part time

employees are converted into figures for equivalent full-time employees in accordance with

their share of the normal annual working time. The percentage of employees outside Germany

increased again, up to 25 %

32 | P a g e

Annual productivity analysis

W a

N d

W d N h

W h

31 Dec 09 31 Dec 10

Turnover 33 452mil 34 000mil

Number of employees 240 000 239 900Number of working days 55 201

84053 974 800

Number of working hours 414 014 000

421 003 440

avgN d 0 = N d

N e =

55201 840240 000

=¿ 230

avgNd 1 = N d

N e=53 974 800

239 900 = 225

avgN h0 = N h

N d=414 014 000

55201 840 = 7.5

avgN h 1 =N h

N d= 421 003 440

53 974 800 = 7.8

avgW a 0 =TVN e

=33 452 mil240000 = 139 383 avgW a 1 =

TVN e

=34 000 mil239 900 = 141 726

avgW d 0 =TV

N d∗Ne

= 33 452 mil

240 000∗230 = 606 avgW d 1 =TV

N d∗Ne

= 34 000 ml239 900∗225 = 630

avgW h 0 =TV

N d∗Ne∗Nh

= 33 452 mil

240 000∗230∗7.5 = 81

avgW h 0 =TV

N d∗Ne∗Nh

= 34 000 mil

239 900∗225∗7.8 = 80.8

∆avgW a = avgW a1−avgW a0=141 726 – 139 383 = 2 343

1.∆avgN d = (avgN d 1−avg Nd 0) * avgW d 0 = (225 - 230)* 606 = -696 915

33 | P a g e

2.∆avgW d = (avgW d 1−avg W d 0) * avgNd 1=225 * (630 – 606) = 5 625

2.1. ∆avgNh = avgNd 1∗¿ (avgN h 1−avg N h 0) * avgW h 0 = 225 * (7.8 – 7.5) * 81 = 5

454

2.2. ∆avgW h = avgN d 1∗¿ (avgW h1−avgW h 0) * avgNh1= 225 * 7.8 (80.8 - 81) = - 351

We can observe an increase in average annual productivity by 2 343 lei.The direct

factors influenced it differently.Average number of working days has a negative influence

on the average annual productivity of 696 915 lei and the average daily productivity

increased by 5 625 lei and had a positive impact on the average annual productivity.Also

the indirect factors have different influences on the average annual productivity.There is

an increase in the average number of working hours of 5 454 lei and a decreas in average

hourly productivity of 351 lei that affected average annual productivity in a negative

way.The decrease in the average hourly productivity might be caused by the old vehicles

that are not able to drive at a higher speed and have functional probles and difficulties

and because of this it might’ve been delayed often.This would be the explanation and the

increase in the average number of working hours,because it would take a higher amount

of hours to arrive on its destination than it normally would.

Some measures have to be taken into action:

A better usage of time per employee

A better organization of the work

The time should be used effectively and efficiently and this emplies the

acquisition of new vehicles tha can be driven faster and have no other

functional problems

Salary expences analysis

31 Dec 09 31 Dec 10

Turnover 33 452mil 34 000mil

Number of employees 240 000 239 900avg W a 139 383 141 726Salary expences 10 583

mil 11 115mil

34 | P a g e

SE Ne

TVNe = avg W a

SETV = Sh

∆ SE= SE1−SE0 = 11 115 – 10 583 = 532 mil lei

∆ N e=¿¿ (N e 1−N e 0) *W a 0∗SE

TV =(239 900 – 240 000) *139 383 *

10 58333 452 = - 4 409

573 lei

∆ W a=¿¿ (W a1−W a 0) *N e1∗SE

TV = (141 726 – 139 383) * 239 900 * 10 583

33 452=¿ 179 867

424 lei

∆ Sh=¿ ¿ (Sh 1−Sh0) *N e 1∗W a1 =( 1111534 000

−10 58333 452 ) * 239 900 * 141 726 = 340 000 674

We can observe an increase in salary expences with 532 mil lei and this was caused by the

direct factors.There is a decrease in the number of employees of 4 409 573 lei and might

happen because of the retirements or leaves or maybe deaths. But the remaining

employees work efficiently enough to increase the sales from 33 452 lei to 34 000 mil lei

and with this also the average annual productivity by 179 867 424 lei ,this means that the

employees are productive.

The problem that arises now are the increases in the hourly salary by 340 000 674

lei,changes in salary per hour contributed to the increase of remuneration expences.

A normal thing in a company would be that the turnover indicator to be higher

than the indicator of remuneration cost,which is not the case in our company and some

actions have to be taken in order to improve this situation,because even though a lot of

employees left, remuneration cost increased when it should’ve happen otherwise.This

might be caused by the change in the salarization policy of the company or might be

because of the work donne extra that was caused not intentionatly bu because of the

vahicles that are driving too slow and cause delays.

35 | P a g e

APPLICATION

DB Schenker-Romtrans buys in 2007 a generator from Marro Electric System SRL

amounted at 124000 lei(including VAT) and also it gives a discount of 4.5%.The company

receives the invoice,the generator arrives next month.

The company has different subsidiaries within the country.On a regular basis,members

of the internal audit teem must travel in order to control the financial statements of its

subsidiaries ,and they need cars in order to travel faster and cheeper.The company acquired 3

cars amounted 74 400 lei(useful life=5 years,depreciation method = straight line

method).Company receives an invoice in advance of 34 400 lei (need an advance payment in

order to recive the cars) and in the moment the cars arrive the final invoice is registered .

DB Schenker-Romtrans holds a land in Calea Rahovei that in 2008 was evaluated at 2

000 000€,but in 2009 the land was reevaluated at 3 000 000 €.In 2009,the generator was

reevaluated at 400 000 lei (the generator was bought in 2007).

In the same year the company goes with financial audit because it is more effective and

gives up internal audit.The 3 cars that remain from their temporary owners were sold at the

value of 60 000 lei.

In 2010 the reevaluation of the generator is of 350 000 lei.In the same year,DB

Schenker-Romtrans buys an excavator from SUA and the acquisition expenses were:purchase

price=100000$,transport expences=5 000$,setup expences=5 000$,custom expences = 5 000

lei , VAT 24%,1$=2.4lei

The institution accounts for the repairs to it’s building roof,the invoice being 56000

lei.Also the company provides to it’s headquarters the instalment throughout the building of

double-glazed windows in amount of 500000€

DB Schenker-Romtrans buys a crane from its’ supplier in Italy in amount 40 000€.The

ransport was made on the route Italy-Romania,the transport expences 7 000 lei.(VAT

24%,1€=4.2 lei).It registers the fuel invoice and the invoice of the repairs and maintenance

performed by third parties over some old vehicles.

At the end of the year, was made an inventory and the following were established:

36 | P a g e

A minus of 20 electric bulbs of 400 lei and they were charged to the guilty

administrator for the value of 440 lei.

Some of the old furniture of 2 000 lei carrying value was disposed of

2 computers were seriously damaged were disposed(they were bought in 2008 at

4 837 lei,useful life= 3 years).

RECORDINGS

2007

1.Recording the acquisition of the generator

Generator(without VAT)=124 000 *100119 = 104 202 lei

Discount = 4.5%* generator (without VAT)=0.0045 *104 202 = 469 lei

-generator 104 202 lei

-disccount (469)lei

Total acquisition cost = 103 733 lei

+ VAT = 19%* 103 733 = 19 709 lei

Total invoice = 123 442 lei

a)invoice recorded

% = 404 123 442 lei

231 103 733 lei

4426 19 709 lei

b)discount

231 = 767 469 lei

c)equipment received

213 = 231 103 733 lei

2.Recordings of the cars bought

a)Advance payment registered for the cars bought

% = 404 44 030 lei

409 37 000 lei

4426 7 030 lei

b) reversal

404 = % 44 030 lei

37 | P a g e

409 37 000 lei

4426 7 030 lei

c)final invoice

% = 404 56 406 lei

2133 47 400 lei

4426 9 006 lei

2133 = 4426 9 006 lei2

2008

1.The land in Calea Rahovei

BVo= 2 000 000 €

2111 = 462 2 000 000 €

2009

1.Reevaluation of land in Calea Rahovei

As a result from the reevaluation we have an increase in value, than we register asset to

reevaluation reserves.

BV(2008) < FV(2009) => FV-BV = 3 000 000 € -2 000 000 € =1 000 000 €

2111 = 105 1 000 000 €

2.Reevaluation of the generator bought in 2007

BV(2007) = 100 000

FV(2009) = 400 000

BV < FV => FV- BV = 400 000 – 100 000 = 300 000

213 = 462 300 000 lei

3.The cars bought in 2007 are now sold

a) Sell of the cars

4111 = % 71 000 lei

2 For cars VAT is undeductible

38 | P a g e

7583 60 000 lei

4427 11 400 lei

b)Remove from evidence

% = 4111 59 520 lei

6583 44 640 lei

281 14 880 lei

2010

1.Reevaluation of generator

In this case of reevaluation we have a decrease in the value of the asset.Here we have 2

choises to register:

-we have reevaluated the asset in the presios period than we register reevaluation

reserve to asset

-and in the previos periods we didn’t reevaluated the asset so this will be registered

expences with impairment losses to asset

BV(2009) = 400 000

FV(2010) = 350 000

BV > FV => BV – FV = 400 000 – 350 000 = 50 000

105 = 213 50 000

2.An excavator is bought

Purchase price 100 000 * 2.4 = 240 000 lei

+ setup expences 5 000 * 2.4 = 12 000 lei

+ transport expences 5 000 * 2.4 = 12 000 lei

+custom expences 5 000 lei

Total acquisition cost 269 000 lei

a)acquisition of equipment

213 = % 269 000 lei

404 264 000 lei

446 5 000 lei

b)VAT record

4426 = 446 51 110 lei

2.Repairment of the roof

39 | P a g e

611 = 401 56 000 lei

3.Instalment of doube-glazed windows

Because the instalment of the double-glazed windows increase the value of the building,

this will not be registered as an expences but as an asset . This is made accordintly with the

previsions of OMFP 3305/ 2009 that states that this kind of installements increase the value of

the building.

500 000 * 4.2 = 2 100 000 lei

212 = 404 2 100 000 lei

4.The bought of the crane

Because both parties are registered for VAT , transport bill is supported by the

Romanian  company . Delivery made by Italian partner is considered an intra-Community in

terms of VAT, which is exempt in Italy. The crane will be recorded as an intra-Community

acquisition ,  the  VAT  taxation place in Romania.

a)acquisition of equipment

40 000 * 4.2 = 168 000 lei

213 = 404 168 000 lei

b)VAT

4426=4427 40 320 lei3

c)Transport expences are supported by Romania

% = 404 8 680 lei

213 7 000 lei

4426 1 680 lei

5.Fuel

6012 = 3012 100 000 lei

6.Repair and maintenance of the vehicles

Maintenance and repairs  performed by third parties  are subject to special  categories

of expenditure  which the accounting  is done with synthetic account : 611 "maintenance and

repair  expenses  as:

• After the economic content is an account of operating costs;

3 Because it is an intra-Community delivery, Italy is exempt from VAT.

40 | P a g e

• accounting function is treated as active accounts;

• is debited with the amount of maintenance and repair work performed by third parties;

• is credited at the end by passing the costs on the outcome of the exercise;

• Is the balance at period end.

611 = 401 78 500 lei

7.The inventory

In case of disposals we have 2 different situations:

-when the asset is fully depreciated and this is registered as expences to asset

-and when is not fully depreciated , and we register expences and depreciation to asset

a)disposal of old furniture

603 = 3032 5 000 lei

b)minus in electric bulbs

6028 = 3028 400 lei

c)administrator charged

4282 = 719 440 lei

d)disposal of the 2 computers

48374 = 1 209 lei

% = 213 4 837 lei

2814 1 209 lei

6583 3 628 lei

8.At the end of the period the expences are transferred to profit and loss account

121 = 611 78 500 lei

Analysis

Year to 31 Dec 09 31 Dec 10

Item €000 €000Turnover 33 452 34 000Fixed Assets 39 976 40 000Total Assets 48 193 47 303

4 The company uses as a depreciation method for all types of fixed assets: straight line method

41 | P a g e

Net Profit 13 210 14 000Depreciation Expences 2 723 2 825F’A 21 000 21 590

Analysis of Depreciation expences at 1000 lei Turnover

Depreciation rate(d) = Depreciation expences/FA

D2009 = 2723

39 976 *100 = 6.8%

D2010 = 2825

39509 *100 = 7.1%

TV

Depreciation ExpencesTurnover * 1000 FA

Depreciation Expences d

∆Depreciation Expences

Turnover = (Depreciation Expences2010

Turnover 2010 -

Depreciation Expences2009Turnover 2009 )* 1 000 = ( 2825

29335 - 272333 452 ) * 1 000 = 96 – 81 =

15

1. ∆TV = (Depreciation Expences2009

Turnover 2010− Depreciation Expences2009

Turnover 2009 ) * 1 000 =

(2723

29335− 2 723

33 452 ) * 1 000 = 93 – 81 = 12

2.∆Depreciation Expences = (

Depreciation Expences2010Turnover 2010

− Depreciation Expences2009Turnover 2010 ) *

1 000 = (2825

29335− 2723

29 335 ) * 1 000 = 96 – 93 = 3

42 | P a g e

2.1.∆FA =(FA 2010∗d 2009Turnover 2010

−FA 2009∗d 2009Turnover 2010 ) * 1 000 = (

40 000∗0.06829 335

−39 976∗0.06829 335 ) *

1 000 = 92.7 – 93 = - 0.27

2.2.∆d = (FA 2010∗d 2010Turnover 2010

−FA 2010∗d 2009Turnover 2010 ) * 1 000 = (

40 000∗0.07129 335

−40 000∗0.06829 335 ) * 1 000 = 96.2 – 92.7 = 4

The direct factors influence in a negative way, depreciation expences at 1000 lei

turnover with 15 lei.

The increase in turnover with 12 lei leads to an increase in expences.The increase

in depreciation expences leads to the unrealize turnover of 3 lei.In order the situation to

improve,the turnover must increase faster than depreciation expences => ITV > I DE

The indirect factors influence depreciation expences at 1000 lei turnover as it

followes:

-fixed assets is influencing depreciation expences at 1000 lei turnover in a positive

way, with 0.27 leu, but

-depreciation rate has a negative influence of 4 lei

In order to decrease expences we must find what is the reason behind the increase

in depreciation expences at 1000 lei turnover.This might be caused by the change in the

company’s policy, that is changing the depreciation method .Or maybe there are changed

the fixed assets with ones that have a higher depreciation expence.

The efficiency of using FA

PFA

=

F ' AFA

∗TV

F ' A∗P

TV

∆P

FA =( P2010

FA 2010− P 2009

FA 2009 ) * 1000 = (14 00040 000

− 1312039 976 ) * 1000 = (0.35 – 0.33) * 1000

= 20

43 | P a g e

∆F ' AFA

=( F ' A 2010FA 2010

− F ' A 2009FA 2009

) * TV 2009F ' A 2009

∗P 2009

TV 2009∗1000 =(

21 59040 000

−21 00039 976 ) *

33 45221 000

∗13120

33 452 * 1000 = (0.53 – 0.52) * 1.59 * 0.39 * 1000 = 6.2

∆TVF ' A

=F ' A 2010FA 2010

∗¿ (TV 2010F ' A 2010

− TV 2009F ' A 2009

) * P 2009

TV 2009 * 1000 = 21 59040 000 * (

34 00021 590

−33 45221 000) * 13120

33 452 * 1000 = 0.53 * (1.57 – 1.59) * 0.39 * 1000 = - 4.1

∆P

TV = F ' A 2010FA2010

∗TV 2010

F' A 2010∗¿(

P 2010TV 2010

− P 2009TV 2009)* 1000 =

2159040 000

∗34000

21 590∗¿ (

14 00034 000

− 1312033 452) * 1000 = 0.53 * 1.57 * (0.41 – 0.39) * 1000 = 16.6

We can observe an increase in the profit at 1000 lei fixed assets with 20 leiT.he

direct factors have different influences on profit at 1000 lei fixed assets and helps the

increase of it.

Technological composition has a positive effect of 6.2 lei on the preofit at 1000 lei

fixed assets.This is a good thing because this means, there is an increase in the active fixed

assets from total of fixed assets.There are more fixed assets that are directly productive

and effects the profit in a positive way .The performance of directly productive fixed

assets has decreased with 4.13 lei and this means that the active fixed assets are not

enough or not used efficiently in order to increase the sales (sales of services ).On long

term this will lead to a decrease in in all of the performance indicators.We can observe an

increase in profit on turnover of 16.64 lei ,so we can see that according to our sales the

company generates profit.This is very good but we need to find out why the active fixed

assets are not used efficiently,because it can become a problem when the salles will

decrease to bad that the company will register a loss.Maybe the problem behind this is

that it uses old vehicles that thaey cannot work t its full capacity,that easily it brokens and

it needs repairs.

44 | P a g e

Next step will be to analyze the depreciation degree and the renewed coefficient of

fixed assets to see how many old vehicles we have (in %) and how many new ones we

acquire; in order to take some actions we need first to identify the problem.

DD= Depreciation

FA gross value =2825

40 000∗100 = 7%

DR = Investment of FAFA gross value =

2440 000

∗100 = 0.06 %

The depreciation degree is not higher but correlated with the renewed coefficient is

to high.DR must be higher than DR in order for fixed assets to be efficient and productive.

In this branch we need a lot of productive fixed assets in order to make the

bussines work properly and make the clients satisfied and willing to conrtact us.

We need new vehicles in order to deliver the client’s merchandise on time and in a

good condition.We need to make the balance tilt in the favour of the renewed coefficient.

Financial Stability = Capital employed

TL = 39 90026 400

∗100 = 151%

Financial Autonomy = Stakeholder equity

TL = 13 06626 400

∗100 = 49%

Term Financial Autonomy = Stakeholder equityCapital employed =

13 06639 900 * 100 = 32.7 %

General solvency ratio = TA

Tdebts = 48 50926 400

∗100 = 184%

Capital employed reflect all sources of long-term funding ,so we can see that our

financial stability is very good and we can invest in more fixed assets.The financial

autonomy ratio is > 33% which reflects a normal situation for the companies that invest

in fixed assets rom its own sources and management should improve its financing policy,

because it is needed more active fixed assets.

Term financial autonomy measure short-term outstanding debt.Correlating this

ratio with general solvency ratio we can see that we have enough liquidity to honour our

short term debts.From a financial point of view the company stays really good .There are

enough resources in order to buy new vehicles.

Conclusion

45 | P a g e

DB Schenker-Romtrans is an afiliate to DB Schenker,an autrich company and they

account according with the international standards and because of these they imply to

their subsidiaries to account the same,in order to have a common accounting language .

In this case according to my application based on this company,they apply IAS 16

“Property,plant and equipment” and all its provitions ,but it also applies the European

regulations.In the matter of an acquisition of an assets from an European

country ,member of Eurpean Union ,that country from which I acquired the asset will not

register the VAT but the country that bought the asset as long with the transport

expences.This is an European Regulation concerning transactions between Intra-

Community countries.

The depreciation method used is straight-line method for all types of fixed

assets.What it concerns the costs related to fixed assets,are registered according to IAS

16.Costs related to repair and maintenance and also costs related to repair that raises the

value of the asset because this will be am improvement of the asset that in the future will

have an increase of in the economic benefit,are recognized as assets because they increase

the original value of the asset .

I have donne an economic-financial analysis in order to determine the

performance of the company ,it’s situation and to identify it’s problems or even the future

problems that might occur .Because my paperwork is on fixed assets,I have tried to find

out how are the fixed assets in the company,the degree of depreciation,the renewed

coefficient,the expences related to depreciation and the efficiency and profitability related

to fixrd assets.To see a generat aspect of the company’s situation I tried to find out

matters about it’s productivity and expences related to salaries.

Somehow al the problems that I’ve found when I ‘ve made the analysis,were

connected .I think this caused all of the problems in the areas I’ve made the analysis.The

fact that company uses old vehicles and doesn’t buy new ones,even though has enough

resources to do so ,made that expences with depreciation and also the expences with

salary increases.Even the hourly productivity was effected by it and if it is not taken into

into consideration,soon will affect the annual productivity,which will be bad.Their main

problem is that their old vehicles are not efficient nor productive enough and not for long

46 | P a g e

it will cause major problems,like decrease in profitability and this can bring damages to

the company.

From way I see it the management is responsible for this situation , they have to

acquire more vehicles so that the turnover to increase but also the productivity which is

really really low(is positive but low).

Generally the company goes very well ,the only problem being with the old vehicles

in function and the fact that are not investments in more active fixed assets and from here

there are some problems with the decrease in the average hourly productivity ,the

increase in the remmuneration expences and in the efficient use of the direct productive

fixed asstes .The main problem here is in the financing policy of the company which has

to be improved especially when the company can afford it.The company is stable from

financial point of view,has enough resources in order to pay on time all of the debts and

also has financial autonomy which means that it can invest in fixed assets from its own

sources.If all of these are fixed than the company should work smoothly .

47 | P a g e