Assest held for hire are fixed assets in the lessors books
Refer to
IAS17
FRSSE (section 6)
SSAP21
FRS102 (section 20)
SEN 06
If you are going for exclusion under IFRS5 Non current assets held for resale and discontinued operations then there are criteria that would need to be met including :
Asset must be held for resale
Asset must be being actively marketed
Sale should be expected within one year
There should be no intent to rescind the offer for sale
The asset should be available for sale immediately in present location and condition
The asset should be marketed at a price commensurate with its value
(The above are from memory so will not be word perfect).
If an asset is being hired out then it is not immediately available for sale so cannot be classified as a current asset.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Many thanks to both of you, the only reason for asking this was that I was working on a question, which says: "I introduced second-hand tools into my business. These tools had a cost value of £800 which were allocated for hire, and those with a cost value of less than £500 were allocated as tools for resale"
So the second hand tools which are used for "Hire" I should class these as "Fixed Assets"?
As I was under the impression that "Fixed Assets" related to things that Stayed in the business, i.e machinery, fixtures & fittings, however these tools for hire are being hired out.
where the tools are is just geography, the important thing in deciding where they belong (or even if they belong) in the lessors books is ownership.
Simply because an asset is in use on (say) a building site and being used by a third party does not mean that it should be removed from the lessors fixed asset register any more than it should be on the lessee's.
The asset being leased out is an asset of the lessor going over more than one accounting period. Everything that you have stated indicates that this is an operating rather than finance lease arrangement.
The lessor would account for the equipment as a fixed (non current) asset in its books the same as any other long term revenue generating asset owned by the business (and depreciate accordingly).
For leasing assets I would not apply deminimus capitalisation criteria even taking sub £100 items (i.e. ladders) to the fixed asset register.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
If I have bought some tools for hire on credit from a company say £640, though I have decided that any tools with a cost value of £700, could this still be classed as tools on hire?
As the tools have been bought for £640, which is less than £700 (which is the cost price).
not quite sure of your cunundrum on this one. Think that you may have missed part of the question out.
Tools on hire is only and internal management reporting issue within your business, it is not something required for external reporting.
From the financial reporting perspective you will be looking to have all of your assets calssified and depreciated through non current assets unless they will be totally consumed within one year of purchase (no difference between your internally set level less than £700 and greater than £700).
there is no deminimus restriction on the level at which the tools could be classified through non current assets.
You would capitalise at cost, not valuation unless there is some reason for an upwards revaluation (unlikely as you were able to buy them for £640 so that is their value).
Through your non current assets you would capitalise and depreciate £640.
Interest on the credit agreement is expensed through the P&L
The outstanding debt on the asset is recorded as a creditor (a liability)
The income associated with hiring out the equipment is recorded through the P&L as income.
The one small issue that there is here is that if the outstanding liability to the credit company goes over more than one period then technically the liability should be split between current liabilities (debt repayable within 12 months) and non current liabilities (debt repayable after more than 12 months).
However, for such a small amount the whole amount of the debt would generally be put to current liabilities.
An exception to that would be where one perhaps purchased (for example) ten items each with a cost of £640 in which case the whole group would be classified and capitalised together at £6400 and the expectation would be that t he liability would be split between current and non current liabilities.
As stated above, whether the equipment is on hire or resting is only an internal reporting matter.
Hope that makes sense,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
