Verification and Valuation of Other Fixed Assets
Verification and valuation of other fixed nature assets are classified into two categories such as wasting assets and fictitious assets. The wasting assets are also known as depleting assets and it has both physical and legal existence. The fictitious asset does not have market value but it has legal existence. The procedure for verification and valuation of both these assets are discussed below.
It is also known as depleting assets, wasting assets are of a fixed nature but depleted or consumed gradually. The process of earning income causes depletion or exhaustion in the value of the assets. Mines, Oil wells, Quarries are some of the examples of wasting assets.
There is a difference between fixed assets and wasting assets.
1. The Fixed assets are replaceable, whereas wasting assets is irreplaceable after its useful life is over.
2. The value of fixed assets decreases due to normal wear and tear, i.e., depreciates with time and use or due to obsolescence while the value of wasting assets declines as a result of gradual exhaustion or reducing stock.
The auditor should confirm in this regard, the value of the wasting assets in the Balance Sheet is reduced by the estimated amount of yearly depletion. In other words, a wasting asset appears in the Balance Sheet as its estimated diminished value.
The assets which do not have physical existence are called as Fictitious Asset.
Examples of fictitious assets are – Preliminary Expenses incurred at the time of formation of the company, Development Expenses, Debenture Discount, Amount spent on special advertisement campaign, Brokerage, Underwriting Commission and deferred revenue expenditure.
1. Auditor should verify that expenses incurred are properly authorised by a responsible person.
2. He should ensure that fictitious assets are treated as deferred revenue expenditure. Deferred Revenue Expenditure means temporary capitalization of revenue expenditure with the ultimate object of spreading the amount over several future years to which benefit of such expenditure will be available.
3. The auditor should confirm that the asset is disclosed in the Balance Sheet at the amount of expenditure incurred less amount written off.