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Fixed Assets Accounting Practices: A Study of
Selected Tyre Manufacturing Companies in India |
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| Paper Id :
19088 Submission Date :
2023-07-16 Acceptance Date :
2023-07-17 Publication Date :
2023-07-24
This is an open-access research paper/article distributed under the terms of the Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. DOI:10.5281/zenodo.12771626 For verification of this paper, please visit on
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| Abstract |
Fixed asset imply properties of permanent nature
by means of which the concern is carried on and which are held for the purpose
of earning income and not for the purpose of resale. Fixed tangible assets
means these properties perceptible to the senses as having physical substance
like land, building, plant & machinery, equipment, furniture and fixtures,
patterns, drawings. An assets in intangible if its value resides not in
physical properties of the assets itself, but in the right which its possession
confers upon the owner like goodwill, patents, which business has acquired for
use in producing goods or Services and which are not for resale so long as they
are serviceable. Section 123 and Schedule II is included in Companies Act,
2013. The objective of the present study to analyze policies and practices in
relation to fixed assets accounting in tyre manufacturing companies for the
period from 2018-19 to 2021-22. All the selected four tyre manufacturing
companies adopted Ind AS 16 (AS 10), Ind AS 23 (AS16). |
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| Keywords | Borrowing Cost, Capital Expenditure, Depreciation, Fixed Assets, Inflation. | ||||||
| Introduction | Concept
of Fixed Assets and its Accounting in Tyre Manufacturing Industry Fixed asset imply properties of permanent nature by means of which the concern is carried on and which are held for the purpose of earning income and not for resale. In other words, fixed assets are those properties which may be tangible or intangible (i.e. fixed tangible assets means these properties perceptible to the senses as having physical substance like land, building, plant & machinery, equipment, furniture and fixtures. patterns, drawings etc. An asset is intangible if its value resides not in physical properties of the assets itself, but in the right which its possession confers upon the owner like goodwill, patents. Fixed Assets are those assets of a manufacturing organization which are of a permanent nature and which the proprietor of an organization purchases because these are helpful in the operation of the business year after year. These assets are not intended for re-sale but are purchased for permanent use. Fixed Assets Accounting Fixed assets accounting means study of purchase, use, repair and replacement of fixed assets. Thus, fixed assets accounting refers to the management of fixed assets as well as depreciation policy of a manufacturing company. Fixed assets accounting includes depreciation accounting, replacement and maintenance policy, capital expenditure budget, plant register, obsolescence policy, optimum use of fixed assets, effect of inflation on fixed assets etc. The Companies Act, 2013 and the Income Tax Act, 1961 and their subsequent amendments from time to time make provisions regarding this. In schedule II (read with section 123) of Companies Act, 2013 the useful lives to compute depreciation is given. |
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| Objective of study | The objective of the present study to analyze policies and practices in relation to fixed assets in manufacturing company of our country with specific reference to tyre manufacturing industry. More specifically, the study focuses on the following questions:
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| Review of Literature |
Khandelwal,
N.M., (2008) “Depreciation Accounting” Published by Trivani Prakashan, Ajmer
In this book author discuss international accounting practices relating to changing price level. According to author in most of countries such information are supplementary to, but not a part of the primary financial accounts. According to the “Inflation Accounting Committee” of United Kingdom, which has recommended the system known as “Current cost Accounting”, the depreciation provision for the year will be calculated on the basis of new valuation which may occur every year. Sharma, N.K. (1993) “Non-current Assets Accounting” RBSA, Publishers, Jaipur. Ed. 1993In this book Dr. Sharma discussed following aspects of Non-current Assets Accounting (a) Accounting Standards relating to non-current assets. (b) Legal Provisions relating to non-current assets. (c) Non-current assets policy. (d) Non-current assets budget. (e) Non-current assets register. Sharma, N.K., (June, 2002) “Concept of Fixed Assets Accounting”, in the Chartered Accountant According to author a detailed study of conceptual framework of fixed assets accounting is necessary for every accountant. He has discussed some important concepts of fixed assets accounting in detailed manner. In this research paper author has enumerated six approaches to fixed assets accounting. These are: (a) Valuation approach, Cost approach, Appraisal approach, Renewals approach, (b) Replacement approach, Service expired approach. |
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| Methodology | The present paper is a descriptive research and
based on secondary data, which are collected from the published annual reports
of tyre manufacturing companies in India, economic surveys, books, newspapers,
journals, websites etc. The published and unpublished work of various scholars
also used. The study is basically conceptual in nature and for the purpose of the
study; an extensive review of literature has been studied. Quantitative study
has been done to draw conclusions. Percentage analysis, ratio, average etc.
mathematical tools has been used to analyze the data. The study has undertaken
with the help of secondary sources of data and already published data like news
paper, websites and different reports. |
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| Sampling |
Presentation of Data The data so collected has been presented in the standard format in analytical way through the coding, editing and using tabulation, diagrams and graphs.
Scope of the Study Following companies have been selected for my research paper: 1. Apollo Tyres Limited 2. CeatLimited 3. MRF Limited 4. JK Tyre & Industries Ltd. Time Period 4 Years i.e. Financial Years from the year 2018-19 to 2021-22.Tyre Manufacturing Companies
The study is done on four tyre manufacturing companies namely, Apollo Tyres Limited, CEAT Limited, MRF Ltd. and JK Tyre & Industries Ltd. The major companies in tyre segment is Apollo Tyres Ltd., MRF Ltd.,Ceat Ltd. and JK Tyre and Industries Ltd., which account for 63% of the organized tyre market. MRF Ltd. is the largest tyre manufacturer in India. Apollo Tyres Limited Apollo Tyres Ltd. is the leading tyre manufacturing company in India. In truck tyres it has in excess of 30% market share. It’s head office at Gurgaon (Haryana) and registered office at Cochin (Kerala). The company has been the market superior in the bust and truck tyres segments. Besides the main truck and bus tyre business, honestly considerable part of its turnover arises from automotive tubes and flaps. Its exports are directed through Apollo International to the US, Brazil, Germany, Egypt, Sudan etc. CEAT Limited CEAT Limited founded in the year1924 having its registered office at Mumbai and the star company of RPG GROUP. Being the IInd greatest selling brand in India with a market portion of 14.6%, Ceat provides primarily to the replacement market. With the initiation of multinationals like Bridgestone, Goodyear, Continental and Michelin a key shakeout in the industry being as a joint venture with Goodyear. MRF Limited MRF Ltd. is the first Indian company to export tyres to the US. It is the first company in India to manufacture and market Nylon tyres passenger tyres commercially with registered office in Chennai. In the year 2004, the company's has turnover above Rs. 30 billions. MRF Ltd., started as a little manufacturing unit of balloons, latex cast squeaking toys and industrial gloves. It has first office in 1949 at Chennai (Tamil Nadu) in India. It commenced the tyre manufacturing in 1961.At present, MRF has 6 manufacturing plants in India. It has exports tyres in more than 75 countries globally. JK Tyre & Industries Ltd. It has administrative Office in New Delhi and registered office at Kankroli in Rajasthan. Innovators of radial technology, the company manufactured the first radial tyre in 1977 and presently the market leader in Truck Bus Radial segment. The Company delivers segments of commercial vehicles, passenger vehicles, two & three-wheelers. Fixed Assets Accounting Practices Fixed assets policy and accounting has become an inseparable part of financial accounting which ensures that a change has been made to the revenue to represent the service rendered by the fixed assets and present a true and fair view of the state of affairs. Section 123 and Schedule II is included in Companies Act, 2013. Schedule II of Companies Act, 2013 shown useful lives to compute depreciation read with section 123. Provision for depreciation must necessarily be made before ascertaining true profit for the financial year. This diminution in its value should be, therefore, debited to profit and loss account, before net profits are arrived at. Fixed asset is shown in the balance sheet at its written down value, that is, at its real value (on the basis of diminution in its value) in monetary terms. All the selected four tyre manufacturing companies adopted Ind AS 16 (AS 10) and applied disclosure requirements of its. All selected companies shown in schedule of “Property, Plant and Equipment” in its annual reports according to Ind AS 16. Depreciation has also provided as per section 123 of Companies Act, 2013. All the selected four companies adopted the adopted Ind AS 23 (AS 16) and capitalized the borrowing costs (interest). All the selected tyre manufacturing companies also applied the recommendations of Ind AS 38 (AS 26) related to intangible assets.
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| Tools Used | Various statistical techniques as well as ratio analyses techniques, common-size statements, cash flow and fund flow techniques has been applied. For analyzing the data and interpreting the same to arrive at accurate and concrete conclusions and then suggestions are made to improve the efficiency and productivity of the companies. | ||||||
| Analysis |
From the table 1, it is clear that Land and Building of Apollo Tyres Ltd., is worth Rs. 1370.32 crores in the year 2019 which is lowest during my study period and Rs. 2727.99 crores in the year 2020 which is highest. The common-size proportions in comparison to gross fixed assets are 14.31 percent in the year 2019 which is lowest during the research period and 20.91 percent in the year 2020 which highest during the year 2019 to 2022. The absolute amount of Land and Building has up and down trend during the whole the study period. The range of absolute amount of land & building is Rs. 1357.67 crores. Plant and Machinery which is lowest at Rs. 7519.77 crores in the year 2019 and highest in the year 2022 at Rs. 12742.20 crores in case of Apollo Tyres Ltd. It has increasing trend in all the four years of my study. Common-size proportions in comparison to gross fixed assets have fluctuating trend in whole the research period. It is highest at 78.51 percent in first year of study and lowest at 72.80 percent in the second year of my study. The absolute amount of plant and machinery has an upward trend during the whole the study period. The range of absolute amount of plant and machinery during my study period is Rs. 5222.43 crores. In Apollo Tyres Ltd. component of Gross Fixed Assets to Motor Vehicles is Rs. 80.56 crores in the year 2019 which is increased to Rs. 116.46 crores in the year 2022. The proportion of Motor Vehicles to gross fixed assets has also shown a decreasing trend during 2020 and 2021. It is highest at 0.84 percent in 2019 and lowest at 0.67 percent in the year 2020. The absolute amount of Motor Vehicles has an upward trend during the whole the study period. It is highest at Rs. 116.46 crores in the year 2022 and lowest at Rs. 80.56 crores in the year2019. Thus, the range of absolute amount of Motor Vehicles during my study period is Rs. 35.9 crores. In case of Apollo Tyres Ltd., Furniture and Fixtures is worth Rs. 222.20 crores in the year 2019 which increased up to Rs. 263.37 crores in the year 2022. Thus range of absolute figures of furniture and fixtures of Apollo Tyres Ltd., during my study period is Rs. 41.17 crores. The total amount of depreciation has shown a continuous upward trend in Apollo Tyres Ltd. It has gone up as high as Rs. 4939.08 crores in the year 2022 from Rs. 3179.02 crores in the year 2019. Thus, range of this absolute figure during my study is Rs. 1760.06 crores. Gross fixed assets are Rs. 9578.53 crores in the year 2019 which increases to Rs. 16246.07crores in the year 2022 in case of Apollo Tyres Ltd. Thus, range of this absolute figure during my study period is Rs. 6667.54 crores. These absolute figures have increase trend in all the four years of my study. In Apollo Tyres Ltd., net fixed assets are Rs. 6399.51 crores in the year 2019 which is increased up to Rs. 11306.99 crores in the year 2022. Thus, range is Rs. 4907.48 crores during my study period. These absolute figures have increase trend in all the four years of my study. On the other hand, the common-size proportions in comparison to gross fixed assets is 66.81 percent in the year 2019 which is lowest during the research period and 71.18 percent is highest in the year 2020. The range of this percent is 4.37 percent during my study period.
As per Table 2 Land and Building of Ceat Ltd., has
increasing trend in whole the study period. It is worth Rs. 944.68 crores in
the year 2019 which is lowest during my study period and Rs. 1413.02 crores in
the year 2022 which is highest during the years 2019 to 2022. The range of
absolute amount of land & building in case of Ceat Ltd. is Rs. 468.34
crores during my research period. On the other hand, the common-size
proportions in comparison to gross fixed assets is 21.25 percent in the year 2022
which is lowest during the research period and 27.73 percent in the year 2019
which highest during my study period. It has decreasing trend in all years of
my study. The Plant and Machinery which is lowest at Rs. 2327.61crores in the year 2019 and highest in the year 2022 at Rs.4954.49croresin case of Ceat Ltd. These absolute figures have increasing trend in whole the study period. The range of absolute amount of plant & machinery is Rs. 2626.88 crores during the years 2019 to 2022. On the other hand, the common-size proportions in comparison to gross fixed assets have increasing trend in whole the research period. It is highest at 74.49 percent in last year of study and lowest at 68.33 percent in the year 2019. The range of common size proportions is 6.16 percent during my study period. Gross value of Motor Vehicles of Ceat Ltd. is Rs. 6.95 crores in the year 2019 which is increased to Rs. 7.80 crores in the year 2022. It has increasing trend in all the four years of my study. The proportion of Motor Vehicles to gross fixed assets has showing decreasing trend in whole the research period. The range of absolute amount of Motor Vehicles during my study period is Rs. 0.85 crores. In case of CEAT Ltd., Furniture and Fixtures is worth Rs. 15.60 crores in the year 2019 which increased up to Rs. 28.26 crores in the year 2022. Thus, range of absolute figures of furniture and fixtures of this company is Rs. 12.66 crores during my study period. The proportion of Furniture and Fixtures to Gross Fixed Assets also shows an upward trend in whole the study period. It is highest at 0.46 percent in the year 2019 and 2020 and lowest at 0.42 percent in 2022. Thus, range of this proportion during my research period is 0.04 percent. In case of Ceat Ltd., total amount of depreciation has shown a continuous upward trend in all the four years. It has gone up as high as Rs. 1445.72 crores in the year 2022 from Rs. 560.16 crores in the year 2019. Thus, range of this absolute figure in my study is Rs. 885.56 crores during my study. Thus range of this ratio in case of Ceat Ltd.during my study is 5.30percent. The gross fixed assets of Ceat Ltd. are Rs. 3406.47 crores in the year 2019 which increases to Rs. 6650.87 crores in the year 2022 in case of Ceat Ltd., during the years 2019 to 2022. Thus, range of this absolute figure during my study period is Rs. 3244.40 crores. These absolute figures have increase trend in all the four years of my study. In Ceat Ltd., net fixed assets are Rs. 2846.31 crores in the year 2019 which is increased up to Rs. 5205.15 crores in the year 2022. Thus, range is Rs. 2358.84 crores during study period. On the other hand, the common-size proportions in comparison to gross fixed assets have decreasing trend in all the four years of my research period. It is highest at 83.56 percent in the year 2019 and lowest at 78.26 percent in the year 2022. The range of this percent during my study is 5.3 percent during years 2019 to 2022.
Table 3 shows that Land and Building of MRF Ltd., has increasing trend during whole the study period. It is worth Rs. 2542.65 crores in the year 2019 which is lowest during my study period and Rs. 4352.69 crores in the year 2022 which is highest during the years 2019 to 2022. The common-size proportions in comparison to gross fixed assets is 27.13 percent in the year 2019 which is lowest during the research period and 30.19 percent in the year 2020 which highest during the year 2019 to 2022. It has increasing trend in first two years and decreasing trend in last two years. The range of absolute amount of land & building is Rs. 1810.04 crores. Plant and Machinery are lowest at Rs. 5726.08 crores in the year 2019 and highest in the year 2022 at Rs. 9184.90 crores. It has increasing trend in all the four years. The range of absolute amount of plant and machinery is Rs. 3458.82 crores. Vehicles of MRF Ltd., is Rs. 42.39 crores in the year 2019 which is increased to Rs. 95.16 crores in the year 2022. It has increasing trend in all the four years. The proportion of Motor Vehicles to gross fixed assets has also showing increasing trend. It is highest at 0.63 percent in last year of study and lowest at 0.45 percent in the year 2019. The range of absolute amount of Motor Vehicles is Rs.52.77 crores. Furniture and Fixtures is worth Rs. 20.26 crores in the year 2019 which increased up to Rs. 34.70 crores in the year 2022. Thus, range of absolute figures of furniture and fixtures of this company is Rs. 14.44 crores. Amount of depreciation has shown a continuous upward trend in MRF Ltd. It has gone up as high as Rs. 5750.05 crores in the year 2022 from Rs. 2605.17 crores in the year 2019. Thus, range of this absolute figure is Rs. 3144.88 crores. Gross fixed assets are Rs. 9372.69 crores in the year 2019 which increases to Rs. 15216.32 crores in the year 2022 in case of MRF Ltd., during the years 2019 to 2022. Thus, range of this absolute figure is Rs. 5843.63 crores. These absolute figures have increase trend in all the four years. Net fixed assets are Rs. 6767.52 crores in the year 2019 which is increased up to Rs. 9466.27 crores in the year 2022. Thus, range is Rs. 2698.75 crores. Common-size proportions in comparison to gross fixed assets have decreasing trend in the whole study period. It is highest at 72.20 percent in the year 2019 and lowest at 62.21 percent in the year 2022. The range of this percent is Rs. 9.99 %.
Table 4 shows that Land and Building of JK Tyre has increasing trend in whole the study period. It is worth Rs. 865.38 crores in the year 2019 which is lowest and Rs. 953.73 crores in the year 2022 which is highest. The range of absolute amount of land & building is Rs. 88.35 crores. Common-size proportion in comparison to gross fixed assets is 15.65 % in the year 2022 which is lowest and 15.99 % in the year 2020 which is highest. Plant and Machinery are lowest at Rs. 4485.33 crores in the year 2019 and highest in the year 2022 at Rs. 5046.13 crores. These absolute figures have increasing trend in whole period. The range of absolute amount of plant & machinery is Rs. 560.80 crores. The common-size proportions in comparison to gross fixed assets have constant trend in whole period. Motor Vehicles of JK Tyre is Rs. 31.12 crores in the year 2021 which is increased to Rs. 32.17 crores in the year 2022. It has fluctuating trend in all the four years. Furniture and Fixtures is worth Rs. 18.38 crores in the year 2019 which increased up to Rs. 18.89 crores in the year 2022. Thus, range of absolute figures of furniture and fixtures is Rs. 0.51 crores. Total amount of depreciation has shown a continuous upward trend in all the four years. It has gone up as high as Rs. 2750.52 crores in the year 2022 from Rs. 2114.90 crores in the year 2019. Thus, range of this absolute figure in my study is Rs. 635.62 crores. The proportion of depreciation to gross fixed assets shows an upward trend in all four years. It is highest at 45.13 % in 2022 and lowest at 38.88 % in the year 2019. Thus range of this ratio is 6.25 percent. Gross fixed assets are Rs. 5439.29 crores in the year 2019 which increases to Rs. 6094.09 crores in the year 2022. Thus, range of this absolute figure is Rs. 654.80 crores. These absolute figures have increase trend in all the four years. Net fixed assets are Rs. 3324.39 crores in the year 2019 which is increased up to Rs. 3493.13 crores in the year 2020. Thus, range is Rs. 168.74 crores. It is highest at 61.12 percent in the year 2019 and lowest at 54.87 percent in the year 2022. The range of this percent is 6.25 percent. Chart-1: Chart-2:
Chart-3: Chart-4:
Source: Compiled and Calculated from the data published in Annual Reports of JK Tyre. The above all charts reveal the trend of Gross Fixed Assets, Depreciation/Amortization and Net Fixed Assets of selected four tyre manufacturing companies. According to the chart-1 related to Apollo tyres ltd. gross fixed assets, depreciation/amortization and net fixed assets have increasing trend in all the four years of my study. Chart-2 (related to Ceat Ltd.) and chart-3 (related to MRF Ltd.) shown gross fixed assets, depreciation/amortization and net fixed assets also have increasing trend in all the four years from 2019 to 2022. As per chart-4 gross fixed assets and depreciation/amortization of JK Tyre have increasing trend in all the four years of my study but net fixed assets have increasing trend in first two years, decreasing trend in third year and a little increase in four years of my study. |
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| Findings |
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| Conclusion |
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| Suggestions for the future Study | 1. It may be suggested that detailed tracking records on each asset's cost, accumulated depreciation and prevents loss. Choosing the right techniques and software for it. 2. Change in the method of depreciation or its rates should be resorted to only when it is justified by an impartial review on the basis of technical estimated. 3. Since the price level has its effect on replacement etc., retained earning portion should be adjusted in view of changes in the price level of replacement cost. Also, the financial effects of price level changes should be measured and disclosed in a separate statement. 4. The changes should be prospective and not retrospective, because retrospective application of depreciation method will affect the previous depreciation accounting system. |
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| References |
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