Fixed assets include the OS of the enterprise participating in the production process, having a useful life of more than one year. Fixed assets wear out during use. The amount of depreciation of the OS is partially transferred to the cost of production.
To measure the volume of fixed assets, only physical units are used. This, for example, units of equipment, square meters, etc. Accounting for fixed assets allows you to determine the degree of wear of fixed assets, gives the full dynamics of its practical use during the entire useful life.
In accounting, the cost of fixed assets varies and is divided into the following types. This is the initial valuation, replacement cost and residual. Other types are also used. This is liquidation and market value.
So, the initial estimated value is formed from the actual costs received at the time of acquisition. It remains unchanged and constant throughout its useful life and can be revised only during revaluation, or changed in case of modernization or major repairs.
The replacement cost is the quantitative amount of expenses in the form of depreciation deductions, which is necessary for the restoration of worn-out facilities, calculated taking into account all really valid building norms, normative prices, as well as the market value of material resources and necessary labor costs.
The replacement cost of an asset may be full or minus accrued depreciation. So, the full replacement cost is calculated based on the results of the revaluation of fixed assets taking into account the accrued depreciation. It also takes into account the physical and moral obsolescence (depreciation) of the OS. Physical deterioration involves a reduction in initial cost as a result of deterioration of physical characteristics or partial loss of performance under the influence of natural factors. This type of depreciation can reach from 1 to 5% of the cost of the initial assessment of fixed assets. Depreciation involves reducing the initial cost from 3 to 5% due to the widespread introduction of new equipment models and individual components on the production market.
Such an assessment is unified and comparable in different periods of use, allowing analysis to be made for subsequent volumes of investments of funds for their full reproduction or updating. Moreover, it also makes it possible to most accurately calculate production costs for the release and subsequent sale of products, objectively calculate the cost of fixed assets in the event of their subsequent transfer to rent, and much more. Compared to the original, replacement cost can vary both upward and downward. These changes depend on the direction of the price of installation works, on productivity and transportation costs. The replacement cost minus depreciation is calculated by multiplying the depreciation coefficient by the total replacement cost, taking into account the revaluation.
And the last one. Residual value is a part of the value that was not included in the cost of production in the form of depreciation.
Based on this, the replacement cost of fixed assets is equal to the cost of their subsequent update. Moreover, the amount of deviation of this value from their initial assessment largely depends on the growth rate of scientific and technological progress, the introduction of innovations and the level of inflation.