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ACCOUNTING FOR FIXED ASSERTS (A Case
Study Of Coca Coca Bottling Company Plc 9th Mile Corner)
Table Of
Contents
Title Page
Approval
Page
Dedication
Proposal
Acknowledgement
Table Of
Contents
Chapter One
1.0
Introduction
1.1
Background
1.2
Statement Of Problems
1.3 The
Objective Of The Study
1.4
Significance Of The Study
1.5 Scope
And Limitations Of The Study
1.6 Time
1.7
Definition Of Terms
1.8
Hypothesis
Chapter Two
2.0
Literature Review
2.1
Components Of Acquisition Of Cost
2.2
Recognition Of Interest On Deferred Payment Contracts
2.3
Components Of Cost Of Self Constructed Property
2.4
Consideration Other Than Cash
2.5 Amount
Substituted For Historical Cost
2.6
Requirement And Disposal
2.7
Depreciation Of Fixed Assets
2.8 Causes
Of Depreciation
2.9
Provision For Depreciation As Allocation Of Cost.
2.10 Main
Method Of Calculating Provision For Depreciation
2.11
Accounting Treatment Of Depreciation
Chapter
Three
3.0 Research
Method And Methodology
3.1 Research
Methods Used
3.2 Descriptions
Of Respondents
3.3
Determination Of Sample Size
Chapter Four
4.0
Presentation, Analysis And Interpretation Of Data
Chapter Five
5.0 Summary
Of Findings Conclusions And Recommendation
5.1 Summary
Of Finding
5.2
Conclusion
5.3
Recommendation
Bibliography
Appendix
CHAPTER ONE
1.0
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Fixed Assets
are those assets of a business which are of material value, like property,
plant and equipment and other assets with relatively permanent life acquired by
the enterprise for use in production or supply of goods or instructed with
intention of being used on a continuing basis or for administrative purpose and
many include items held for the resale or for conversion into cash in the
ordinary source of business.
However,
there are other long lived assets which we cannot see such ones are classified
as in tangible assets.
They are:
Goodwill, trademark. Be it tangible or intangible all fixed assets represent a
bundle of future services which are paid for in advance and used subsequently
in the process of generating revenue.
Basically,
in a bottling company, there are only three important stages to note down in
records of the company as it relates to the fixed assets in liquidation. They
are:
- The stage
of acquisition of the fixed assets
- The stage
of provision for depreciation of fixed assets
- The third
stage is the time of the period when the assets must have been useless for the
company, then the management can then decide to sell if off and make
replacement.
For better
understanding of the accounting treatment of fixed assets, its acquisition,
depreciation and disposal the researcher has chosen the traditional “T” account
to illustrate this point.
Whenever an
assets is acquired by a firm, the cost of the assets is always debited to that
asset account in the firm’s books and the corresponding entry, will be to
credit the cash or bank account.
At the same
time, when the asset must have been deemed useless, then it can be sold out as
scrap. The cost of the disposal will be credited to the asset account while the
cash or bank account of the firm will be debited. The assets depreciation
account is equally created. On this, the cost of disposal is debited and the
total depreciation by the assets as at the date of disposal credited.
The third
account is the disposal account. On this the cost of the assets is debited
while the total amount realized from the depreciation will be credited. Also to
be credited is the profit and loss on the disposal.
At this
point, a typical example of purchase depreciation and final disposal of an
asset (machine) use din production will be illustrated using a ‘T’ account.
MACHINE
ACCOUNT
Jan. 2000
cost xxx Balance c/d xx
xx
MACHINERY
DEPRECIATION
To machinery
Disposal A/C
xx
xx Balance
b/d xx
xx
MACHINERY
DISPOSAL A/C
Machine cost
xx bank (Disposal) xx
Machine Dep
(D/C) xx
Gain on
disposal xx loss on disposal xx
xx xx
this ‘T’
account to a part from producing the correct figure is also extremely easy to
follow.
PROPERTY,
PLNT AND EQUIPMENT
The cost of
an item, property, plant and equipment comprises to purchase price, including
import duties and non-refundable purchase, taxes and any directly attributable
costs of bringing the assets to working condition for its intended use. Usually
trade discounts and rebates deducted in arising at such purchase price when a
fixed assets in purchased and non-cash consideration is also given, the cost of
the asset is the cash and plus the fair market value of the non-cash
consideration.
Lost represents
the net sacrifice made or be made whether the sacrifice is parting with cash or
parting with any other things of value in acquiring the fixed asset and getting
it to a condition it can be used.
The
acquisition of a fixed asset in recorded simply by debiting the related fixed
assets at cost account and crediting either bank or the suppliers account.
However,
certain costs associated with fixed assets should be written off immediately
through the profit and loss account and should never be shown as part of the
cost of the fixed assets.
In the
experience of the researcher, the warning sign as adopted by the Coca-Cola
bottling company is the letter’s re’ 4. In other words, replacement. Repairs
and renewal to fixed assets are expenses.
Thus the
cost of the machine is debited to fixed assets but the cost of replacing the
engine of an existing vehicle is an expense that is debited to profit and loss
account of the Coca-Cola bottling company plc 9th mile corner Enugu
1.2
STATEMENT OF PROBLEMS
This study
is carried out in order to ascertain and appraise the accounting methods, used
in accounting for fixed assets with respect to Coca-Cola bottling company plc
9th mile corner: Bottlers of seven different flavour of soft drinks.
They are
coke, fanta orange, sprite, Ginger ale, Quinine tonic, krest soda.
Some of the
problems answered in this study includes:
1. What is
fixed asset and what constitutes the fixed assets of a bottling company
2. How is
cost of fixed assets determined
3. How
should the cost of fixed assets be allocated to revenue
4. How
should expenditure for repairs and maintenance be treated.
5. What
problems do they encounter in accounting for fixed assets
6. What
accounting method do they adopt.
7. Should
financial statement include disclosure of depreciation computed on the basis of
replacement costs.
8. How
should disposal of fixed assets be treated
9. Could
these problems be over come land be improved
1.3
OBJECTIVES OF THE STUDY
This case
study is being conducted in order together relevant useful information
regarding the accountancy for fixed assets in Coca-Cola bottling company plc,
9th mile corner, Enugu.
The main
purpose of this study is to study:
1. The
accounting treatment of fixed assets of the bottling company.
2. Ascertain
what constitute other fixed assets of a bottling company.
3. Treatment
of assets disposal
Ratio of
fixed assets to capital
To identify
the major problems and problem areas in accounting for fixed assets.
To make
recommendations on how to improve it.
1.4.
SIGNIFICANCE OF THE STUDY
This
research is under taken to identify the problems encountered in accounting for
fixed assets which constitutes a reasonable percentage of the total assets of a
company and of course how these problems can be overcome.
The study
will be of immense value to accounts department o the Cola-Cola bottling
company land the entire bottling concern in Enugu state.
The result
will help to improve the qualify of their financial statements it will also be
useful to future students of accountancy or nay person who may use it as a
reference while making a study on the
1.5 SCOPE
AND LIMITATIOSN OF THE STUDY
For
effective research work a major bottling concern in Nigeria and in Enugu
particles which handles a large scale production in soft drinks in Enugu state
is chosen. The researcher is talking about coco-cola bottling company, Bottlers
of coke fanta, orange, krest, soda water, tonic water, sprite and ginder ale.
“You cant beat the dealing and its always coca cola”.
The researcher
being a student couldn’t help limiting this study to the area mentioned in the
scope of the study for financial reasons as research work involves a lot of
money.
1.6 TIME:
Time also was a limiting factor as the time available to the researcher for the
study was very short coupled with the fact that the study had to be combined
with other pressing academic works.
The
researcher is aware that the company has many depts under the control of the
9th mile plant here in Enugu, but for the purpose of clarity.
They are not
included in the research work. The researcher considers the above facts worth
mentioning for the sake of clarity.
Finally,
most respondents will appear to be uncooperative in releasing certain
information when asked certain question for fear of having some implications.
This and other minor hitches will hinder the researcher from collecting a more
comprehensive rate
1.7
DEFINITION OF TERMS
Assets: may
be defined as anything owned by a business or by an individual which has a
commercial or exchange value. They are classified according to their nature and
are of various kinds.
Fixed
Assets: William Pickles refers to fixed assets as those assets of a business
which are of a permanent nature and are definitely held for the purpose of
earning revenue and not with as view to resale e.g. plant and machinery
buildings.
It could
still be sub-divided into tangible and intangible
Current
Assets: pickles also refers to this as “Those assets which are made oar
acquired and merely held for a short period of item with a view to selling at a
profit in the ordinary course of business” that is to say, they are easily
converted into cash.
CASH:
According to international accounting standard No 16, the cost of an asset
comprises its purchase price and any directly attributable costs of bringing
the asset to working condition for its intended use.
DEPRECIATION:
Expiration in the service life of a fixed assets. Other than wasting assets,
attributable to wear and tear through use and lapse of time, obsolescence,
inadequacy, or other physical or functional cause, the proportion of the cost
of a fixed assets other than a wasting asset charged as an expense during a
particular period.
GOODWILL:
This represents the original cost of the assets.
HISTORICAL
COST: The is the usual basis for valuing assets it is measured by the cash or
cash equivalent place of containing the asset and bring to the location and
condition necessary for its.
NEW VALUE OR
NETBOOK VALUE
This is the
gross value of he asset less the accumulated depreciation to date. It is the
written down value.
OBSOLENSCENCE:
The process of becoming obsolete or out of date and use.
RESIDUAL
VALVE: Residual value is the realizable value of the asset at the end of its
economic life.
USEFUL LIFE:
estimated number of years which the asset is expected to be useful in
generating income.
HYPOTHESIS
In
attempting to reach decisions, it is sometimes, useful to make conjectural
statements of the relationships between variables or other. Such statements
cannot be taken as statement of fact until they are tested.
In this
regard, some hypothesis environmental below were made in course of this
research in other to help the researcher achieve his objectives.
1. Hi:
Adequate provision for depreciation is necessary for the
replacement
of fixed assets
Ho: Adequate
provision for deprecations not necessary for the replacement of fixed assets.
II. Hi:
proper accounting for fixed assets will help management in decision making as
regards fixed management.
Ho: Proper
accounting for fixed assets will not help management in decision making as
regards fixed assets management.
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