Discussion of selected provisions of National Accounting Standard No. 11 „Fixed assets’

As defined in the Accounting Act 1 (Article 3(1)(15)) fixed assets are, subject to point 17 (which sets out the definition of investment), tangible and intangible assets with an estimated economic useful life of more than one year, complete, usable and intended for the purposes of the entity.

Examples of fixed assets in particular include: real estate, machinery, equipment, means of transport, improvements in foreign fixed assets, livestock. This article will address certain issues relating to fixed assets from the perspective of National Accounting Standard No.

11 2 , in particular regarding the records and their presentation and disclosure in the accounts.

1. Objectives of National Accounting Standard No 11.

National Accounting Standard No. 11 „Fixed assets’ is aid for the application of the provisions of the Accounting Act on Fixed Assets, and in particular to ensure the uniformity of the arrangements applied by entities in the recognition, valuation and entry in the accounts and presentation in the accounts of that asset.

According to point 2.1. CRS No 11 explains the rules for the recognition, valuation and recognition of fixed assets and fixed assets under construction in the accounting books, including depreciation or write-downs, as well as for the presentation and disclosure of information about them in the financial statements of the entity.

CRS Solutions No 11 are basicly in line with the provisions of the relevant International Accounting Standards and, above all, International Accounting Standard No. 16 „Fixed tangible assets’. point 2.2. shows the main differences between CRS No 11 a IAS No 16. The main differences between the above documents are that:

• 1) CRS No 11 allow the possibility of valuation of fixed assets in value revalued only on the basis of separate provisions;
• 2) CRS No 11 introduces the component category 3 , Additional parts 4 and peripheral parts 5 , which are not components referred to in IAS No 16;
• 3) CRS No 11 does not provide for an initial fixation of the cost of future remediation or a future restoration of the place where the fixation is located, as well as other costs necessary for the liquidation of the fixation;
• 4) CRS No 11 does not provide for the possibility of changing the depreciation method of a fixed asset during its lifetime;

1. CRS No 11 does not provide for the possibility of applying separate methods or depreciation rates to parts of a fixed asset, even if they are components within the meaning of IAS No. 16. CRS No 11 provides, on the other hand, for the possibility to establish such one depreciation rates and methods that take into account the different economic useful life and the different ways in which economic benefits are consumed from components, ancillary parts and peripheral parts of a fixed asset;
2. CRS No 11 provides for the initial inclusion in the measure of the fixed financing costs of commitments, including other than loans, taken to obtain a fixed asset, as well as the exchange rate differences (positive or negative) resulting from liabilities in foreign currencies contracted for that purpose, without limiting them to exchange rate differences considered as interest rate adjustment;
3. CRS No 11 assumes that the reclassification of an asset from an investment property is made at the purchase price or cost of production, subject to the circumstances indicated Under point 6.26 b 6 and Under point 6.26 c 7 CRS No 11;
4. CRS No 11 it does not provide for the possibility to settle with equity the effects of the revaluation of fixed assets for the moment they are reclassified to investment property, where the investment property is valued at market value or otherwise defined fair value;
5. CRS No 11 does not provide for an exemption from fixed assets of premises intended for sale or for return to owners;
6. CRS No 11 allows a different range of disclosures of information on fixed assets.

According to point 2.3. CRS No 11 in certain matters relating to the recognition, valuation, recognition and presentation of fixed assets, the entity choosing the accounting rules applicable shall take into account the provisions of other National Accounting Standards, in particular those described in this CRS work No. 6, CRS No 7, CRS No 8 and CRS No 10 and National Accounting Standard No. 4 „Value impairment” and National Accounting Standard No 5 „Lease, lease and lease’.

CRS No 11 does not apply to biological assets, i.e. Livestock and orchards and plantations. Nor does he discuss conversion issues one a fixed measure for another fixed measure and the transfer of a fixed measure in the form of an aport.

According to point 2.9. CRS No 11 take into account the provisions of:

• 1) Act dated 7 July 1994 Construction law (Journal of Laws of 2016, item 290, Later);
• 2) regulations of the Council of Ministers dated 3 October 2016 on the Classification of Permanent Measures (STC) (Journal of Laws of 2016, item 1864);
• 3) Regulations of the Minister of Finance dated 12 December 2001 on detailed rules for the recognition, valuation methods, scope of disclosure and presentation of financial instruments (Journal of Laws of 2017, item 277),
• 4) other legal acts in so far as they concern the subject matter of fixed assets.
• 2. Recording of fixed assets according to National Accounting Standard No. 11.

The technical and organisational problems of fixed assets recording are referred to in Chapter X of CRS No. 11.

It has been divided into two Part — ‘Trade document’ and ‘Specification of inventory of fixed assets’. They will be discussed one by one.

First of all, events involving the collection, improvement, execution of depreciation or write-off or loss of value, the allocation of fixed assets should be documented by evidence that meets the requirements of the formal accounting evidence in question under Article 21 Accounting Act. Under that provision:

1. The accounting evidence shall contain at least:

• 1) identification of the type of proof and its identification number;
• 2) identification of the parties (names, addresses) carrying out the business operation;
• 3) a description of the operation and its value, if possible, also specified in natural units;
• 4) the date on which the operation was carried out and, when the proof was drawn up on another date, the date on which the proof was produced;
• 5) the signature of the issuer of the proof and the person to whom the assets were issued or received;
• 6) the verification and qualification of the proof to be entered in the accounts by an indication of the month and the manner in which the proof is entered in the accounts (decretion), the signature of the person responsible for these indications.

(…)

1a. The data referred to may not be included on the proof:

• 1) Under section 1 points 1-3 and 5, where this results from separate provisions;
• 2) Under section 1 point 6, where this is due to the technique of documenting accounting records.
• 2. The value may be disregarded in evidence if, in the course of processing in the accounting of data expressed in natural units, their valuation is confirmed by an appropriate printout.

1. The accounting officer's proof of foreign currency should include the conversion of their values into Polish currency at the rate applicable on the date of the economic operation. The result of the conversion shall be placed directly on the proof, unless the data processing system ensures the automatic conversion of foreign currencies into the Polish currency and the execution of the conversion confirms the corresponding printout.
2. If the proof does not document the transfer or acquisition of the asset, transfer of ownership or use of the land in question or is not a replacement, the signatures of the persons concerned Under section 1 point 5, may be replaced by signs ensuring that those persons are identified. Signatures on insurance documents and securities issued may be mechanically reproduced.
3. At the request of the audit authorities or the auditor, reliable translation into Polish of the content of the evidence indicated by them, drawn up in a foreign language, should be ensured.

In addition to any event related to the turnover of fixed assets, the CRS recommends using a different type/designation of the accounting document. Examples are: OT – the adoption of a permanent measure for use, LT – liquidation, MT – the change in the place of use of a fixed measure and PK-AM – the accounting of depreciation. According to point 10.2 CRS No 11 such differentiation of accounting documents will facilitate analyses of the turnover of fixed assets.

According to CRS No 11 the OT document is the basic accounting document allowing the introduction of a permanent measure into the accounts.

It contains relevant information on the fixed asset, such as, inter alia, the initial value, the identification of the underlying document, the date of collection, the date of entry into service, the inventory number of the facility, the classification number of the fixed assets, the rate/rate of depreciation.

Under point 10.4 CRS No 11 it is recommended to keep fixed assets cards separately for each livestock facility. According to point 10.5 CRS No 11 the relevant classification sections should also be included in the supporting books (residence of fixed assets).

As examples, the breakdown of fixed assets inventory facilities by group of permanent measures classifications, breakdown into own and financial leasing, breakdown by place of use.

By point 10.6. CRS No 11 the entity keeps records of fixed assets in accordance with the provisions of the Chapter 2 Accounting Act to ensure that both its management, reporting (including deferred income tax) and tax requirements are met.

second Part of Chapter X of the CRS No 11 treats the specificity of inventory of fixed assets. On inventory in accounting Article 26 Accounting Act:

1. Units shall carry out inventory on the last day of each financial year: (...)
2. fixed assets to which access is significantly impeded, land and rights eligible for immovable property, disputed and questionable claims, and in banks also for non-performing claims, claims and liabilities to non-accounting persons, public-law titles, as well as non-listed assets and liabilities Under points 1 and 2 and listed Under points 1 and 2, if it was not possible to carry out their inventory by nature or to agree on reasonable grounds, by comparing the accounts with the relevant documents and verifying the values of those components.
3. The inventory by way of physical inventory shall also include the assets held in the unit owned by other entities entrusted to it for sale, storage, processing or use, notifying those entities of the results of the inventory. This obligation shall not apply to units providing postal, transport, forwarding and storage services.
4. Time and frequency of inventory, specified Under section 1, is considered to have been observed if inventory:
5. assets - excluding cash assets, securities, products in production and materials, goods and finished products, specified under Article 17(2)(4) - started not earlier than 3 months before the end of the financial year and completed until 15 on the day following the following year, the determination of the situation took place by the addition or write-down of the condition established by the census by nature or by confirmation of the balance - revenue and revenue (increases and reductions) which occurred between the date of the census or confirmation and the date of the determination of the status resulting from the accounts, the condition resulting from the accounts being cannot be established after the balance sheet date;
6. stocks of materials, goods, finished products and semi-finished products located in secure storage facilities and subject to quantitative-value records - were carried out once in a period 2 years;
7. real estate included in fixed assets and investments, as well as other fixed assets and machinery and equipment included in the fixed assets under construction, were carried out once in a period 4 years;
8. stocks of goods and materials (packaging) included in the register at retail outlets of the unit - were carried out once a year;
9. wood stocks in forest management units were carried out once a year.
10. This inventory Under section 1, it shall also be carried out on the day on which the entity ceases operations and on the day before it is put into liquidation or bankruptcy.

4a. Provision section 4 It shall be applied in accordance with the company's business in decline on the date on which the succession manager ceased to serve or on the date of expiry of the succession board.

5. Inventory may be waived: (...)

1. in the case of merger or division of units, with the exception of capital companies, if the parties, by written agreement, refrain from carrying out inventory;
2. in the event of suspension of activities, if in accordance with Article 12(3b) the entity does not close the accounts.

By point 10.7. CRS No 11 the main objectives of the periodic inventory of fixed assets are:

• (a) verification of the correctness of the accounting records by comparison with the facts and carrying out the resulting corrections to the entity's costs and revenues,
• (b) strengthening internal control of the entity's assets,

(c) an assessment of the status and suitability of the inventory of fixed assets, which may constitute a prerequisite for testing for a permanent impairment.

The inventory shall also cover foreign fixed assets used by the entity.

An additional recommendation is to prepare detailed inventory procedures, in line with the Accounting Act, which take into account the number of facilities and the specificity of fixed assets; in addition, inventory issues should be regulated in the form of inventory instructions.

point 10.11 CRS No 11 presents the specificity of the inventory of fixed assets. It was presented in third points, i.e.:

(a) the inventory of land, rights and facilities which are not readily available and, if it was not possible to carry out the inventory on grounds justified, shall be carried out by means of verification on the last day of each financial year (...),

(b) the inventory of immovable property and other fixed assets located in a secure area, as well as of machinery and equipment forming part of fixed assets in construction, shall be carried out by way of a physical inventory once in a four years on any day of the year (...),

(c) in cases not mentioned in points (a) and (b), inventory shall be carried out by way of an inventory by nature on the last day of each financial year.

In the following part, both methods of inventory were presented. The verification method shall be carried out as follows: first, the states resulting from the accounts of individual inventory facilities shall be compared with the data resulting from the relevant source documents on which the books are recorded; then the actual value of the objects shall be assessed.

According to point 10.18 CRS No 11 the verification method shall be used during inventory:

• land, land use rights and cooperative rights to housing and use; verification is to verify that the entity has documents at its disposal confirming its legal title to land with a specific location and area or title to rights, whether changes in the scope have occurred during the period and whether the value of the land and the above rights has been correctly demonstrated in the accounts,

(b) non-available fixed assets (e.g. underground network equipment, underground tanks, ducts, cables, underwater structures) for which their type and location do not allow for the risk of disappearance or theft; verification in this case consists in confirming their existence, suitability or improvements made on the basis of relevant evidence and information from technical services,

(c) fixed assets in construction, which must be checked to ensure that they have not been transferred to service without being documented and recorded in the accounts or not discontinued; this may constitute a condition for write-offs for a permanent impairment,

(d) fixed assets located outside the entity, where the entity in which they are currently located does not confirm their condition as determined by the census by nature (for example, fixed assets put into leases, operating leases or repairs, as well as fixed assets on the road, for example vehicles are listed).

second This method is an inventory by nature. It involves the calculation and measurement of fixed assets. According to point 10.12 CRS No 11 Naturally recorded inventory facilities shall be shown in inventory sheets.

In addition, it is recommended to use specialized methods of measurement, for example geodesic method, useful for assessing the technical condition of the inventory assets, e.g. flood structures. Inventory by nature should be carried out by designated teams, they should have accounting records.

This reduces the risk of omission during the inventory of information ensuring the determination of the characteristics and completeness of the facilities.

Any incompleteness of an inventory facility, additional or peripheral equipment not shown in the records, exclusion from use, damage, or a condition different from that applicable to the fixed measure at a given age must be recorded. According to point 10.16 CRS No 11 During the census, the consumption of fixed assets shall not be measured or determined.

1. Presentation and disclosure of fixed assets in financial statements.

Chapter XI CRS No 11 discuss the presentation and disclosure of fixed assets in the accounts. According to point 11.1. CRS No 11 the minimum amount of information on fixed assets presented and disclosed in the accounts shall be determined by Annex 1 and No 4, 5 and 6 to the Accounting Act.

In the profit and loss account, the difference between the proceeds from the proceeds from the disposal of fixed assets, including in construction, and their net book value plus the expenses associated with the disposal of fixed assets, shall be shown in the profit and loss account under the heading ‘Receiving / loss on non-financial fixed assets’.

In the introduction to the financial statements, the accepted accounting rules applied by the entity in respect of fixed assets, including depreciation, should be disclosed.

CRS No 11 recommends also the disclosure of additional information on fixed assets that may be useful to users of financial statements. These examples Under point 11.3. is:

• (a) the market value or other fair value of fixed assets (especially real estate), where it differs significantly from the net book value shown in the balance sheet,
• (b) the initial value of fully depreciated fixed assets still in use; including buildings and structures and low-price fixed assets from which a one-off depreciation was made,
• (c) net book value of temporary unused fixed assets,
• (d) an indication of the causes affecting the evolution of rates and depreciation rates,

(e) an indication of the factors affecting the permanent loss of the value of fixed assets or of the factors causing the interruption or cessation of the construction of new fixed assets.

4. Summary

Fixed assets are an integral part of many companies, their assets. It is therefore important that the provisions of the Accounting Act apply to them properly. National Accounting Standard No. 11 is a necessary addition to the Accounting Act, which is directly attributable to Article 10(3) that one.

CRS No 11 addresses, among others, issues relating to recognition, valuation and inclusion in the accounts of fixed assets. However, this Article sets out important issues concerning technical and organisational problems in the recording of fixed assets and the presentation and disclosure of information on fixed assets in the accounts.

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1 Act dated 29 September 1994 on accounting (i.e. Journal of Laws of 2021, item 217 as amended). https://sip.lex.pl/#/act/16796295/2889800?directHit=true&directHitQuery=ustawa%20o%20rachunkowo%C5%9Bci (access: 8 April 2021 9:48)

2 https://www.gov.pl/web/finanse/krajowe-standardy-rachunkowosci (access: 8 April 2021)

3 CRS No 11, point 4.17. – „The component is an integral part of the permanent product that determines its use (e.g. engine in the car, foundation under the building, motherboard in the computer unit) which cannot be detached from it without significantly damaging the suitability of the durable product.

In the case of certain categories of fixed assets, regulations shall specify the list of components which they must possess in order to be considered complete and consequently put into service. The component shall be physically linked (physically incorporated into the fixed measure) or legally linked to the fixed measure.’

4 CRS No 11, point 4.19. – „An additional part (additional equipment) is an element of a durable product that increases its usability but is not necessary for its operation or does not restrict its use. The additional part shall be physically incorporated into or otherwise permanently linked to a fixed product (physically or legally).

It is recognised in the gross book value of the fixed asset to which it is linked as it cannot be considered as a complete asset itself. An example of an additional part is air conditioning or radio mounted in the car, spare wheel in the car, burglary blinds in the building, etc.

6 CRS No 11, point 6.26., (b) ‘When a fixed asset is acquired by reclassification from an investment property, the initial value of the fixed asset shall be its net book value at the date of reclassification, as determined at fair value; if the property was initially recognised in an entity as an investment property and valued at fair value, the entity at the date of reclassification of the property shall measure it at fair value and the change in value shall account for it in accordance with the principles applicable to the investment so determined net book value shall be the initial value of the fixed asset as a result of reclassification.’

7 CRS No 11, point 6.26., point (c) — ‘When a fixed asset is acquired by reclassification from an investment property, the initial value of the fixed asset shall be its gross book value less its previous write-down and write-downs, if at any time during the earlier periods the asset was included as a fixed asset — if the entity, in accordance with the accepted accounting principles, values the investment property at the market price, or any other fair value.

If it is not possible to establish the historical value of the initial value of the reclassified asset, then its initial value at the date of reclassification shall be the selling price of the same or similar object. At the same time, the day of retraining shall be carried out in accordance with CRS No.

4 „Impairment of assets’ a loss test for a fixed asset with a possible write-down of the remaining operating costs.”

Shortcuts used:

CRS – National Accounting Standard

CRS No 11 – National Accounting Standard No. 11 „Fixed assets’

Accounting Act — Act dated 29 September 1994 on accounting (Journal of Laws of 2021, item 217)

IAS – International Accounting Standard