These guidelines are established based on the Basic Standard for Enterprise Accounting and specify the recognition, measurement, and disclosure of related information regarding fixed assets.
I. Definition and Recognition of Fixed Assets
Definition of Fixed Assets
Fixed assets are tangible assets that possess the following characteristics: (1) held for use in producing goods, providing services, renting out, or for administrative management; and (2) have a useful life exceeding one accounting year.
Confirm Conditions
- (1) It is probable that the economic benefits associated with the fixed asset will flow to the enterprise;
- (2) The cost of the fixed asset can be measured reliably.
II. Initial Measurement
Fixed assets shall be initially measured at cost.
Acquired Fixed Assets
Cost includes purchase price, related taxes, transportation fees, handling charges, installation costs, and professional service fees.
Self-Constructed Fixed Assets
Cost consists of all necessary expenditures incurred before the asset is ready for its intended use.
Fixed assets contributed by investors
Cost shall be determined based on the value stipulated in the investment contract or agreement, unless such value is not fair.
3. Subsequent Measurement and Depreciation
Depreciation Principles
Enterprises shall depreciate all fixed assets, except for those that have been fully depreciated but are still in use and land separately valued and recorded. Depreciation shall be calculated monthly and allocated to the cost of related assets or recognized as current period expenses based on usage.
Straight-line method
Allocate evenly over the estimated useful life
Workload-based method
Allocate based on actual workload
Double-declining balance method
Accelerated Depreciation Methods
Sum-of-the-years'-digits method
Accelerated Depreciation Methods
Enterprises shall review the useful life, estimated residual value, and depreciation method of fixed assets at least annually.
IV. Disposal
A fixed asset shall be derecognized if any of the following conditions is met:
- (1) The fixed asset is in the disposal state;
- (2) The fixed asset is not expected to generate future economic benefits through use or disposal.
When a company sells, transfers, scrapes fixed assets, or incurs damage to fixed assets, it shall recognize the amount of disposal proceeds minus the book value and related taxes and fees as current period profit or loss.
V. Disclosure Requirements
- (I) Recognition criteria, classification, measurement basis, and depreciation methods for fixed assets;
- (2) Useful lives, estimated net residual values, and depreciation rates for various categories of fixed assets;
- (3) Beginning and ending gross values, accumulated depreciation, and cumulative impairment losses for each category of fixed assets;
- (4) Depreciation expense recognized in the current period;
- (5) Restrictions on ownership of fixed assets, their amounts, and the book value of fixed assets pledged as collateral;
- (6) Fixed assets to be disposed of, including name, book value, fair value, estimated disposal costs, and expected disposal date.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 4 — Fixed Assets (PDF)