ACCOUNTING FOR FIXED ASSETS

(A CASE STUDY OF COCA-COCA BOTTLING COMPANY PLC 9TH MILE CORNER)

By

IKE CHINYERE NNENNAYA

Presented To

Department of Accounting

PROPOSAL

I propose to write on the topic "Accounting for Fixed Assets".

This is a partial fulfillment for the award of Higher National Diploma (HND) in Accountancy.

In this study accounting for fixed assets would be discussed extensively in order to know their impact on a Nigerian Bottling campaign

The scope of this work will be specifically on the accounting for fixed assets in relation to the usefulness, and importance in going concern like coca-cola bottling company plc, 9^th mile corner.

In the course of carrying out the research, information and materials would be collected from primary and secondary sources.

Information will be obtained from interview, journals both published and unpublished and other research units.

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 ACQUISTITION OF COST

2.2 RECOGNITIONOF INTEREST ON DEFERED 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 I

10 INTRODUCTION

11 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 totaldepreciation by the assets as at the date of disposal credited

The third account is thedisposal account On this the cost of the assets is debited while the total amount relaized from the depreciationwill 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 9^th mile corner Enugu

12 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 9^th 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

13 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, 9^th 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

14 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

15 SCOPE AND LIMITATIONS 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

16 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 9^th 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

17 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 eg 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 conditionfor its intended use

DEPRECIATION: Expiration in the service life of a fixed assets Other than wasting asets, attributable to wear and tear through use and lapse of time, obsolescence, inadequacy,sor other physical or funcitonal 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

REFERENCES

1 JOOMUYA Frank Woods Accounting I, West African Edition (London, 1982) P27

2 International Accounting standards (IAS) "Accounting for property, plant and Equipment Issued by IAS No 16

3 Pickles W Study Text in accountancy (EIB Publishers 1980)