Approaches to modeling assets
There are two approaches to modeling fixed assets, which are as follows:
- The detailed approach
- The simple approach
The detailed approach
The detailed approach is a more precise method than the simple method that looks at the components of fixed assets—the costs of the assets, additions, disposals, depreciation, and accumulated depreciation. Your discussions with management will give you an idea of their CapEx plans over the next five years. Where there is a disposal or sale, a fixed asset has to be removed from the books. The net book value (cost less accumulated depreciation) of that asset will be transferred to a disposal account as a debit and the proceeds of the sale will be transferred to the same account as a credit. The difference between the two will either be a profit—where the sale's proceeds exceed the net book value—or a loss—where the net book value is greater than the sale's proceeds...