Fixed asset accounting

1) When the Asset is purchased, at this time you should include all the amounts expended to bring the asset to its current location. For e.g. freight

Fixed Asset A/c     Dr
        To, Bank A/c
(Being amount paid for the purchase of asset)

2) When any expense is incurred, if that expense increases the efficiency/capacity then it should be capitalised otherwise it should be charged to Profit & Loss A/c

3) Depreciation has to be charged in books at:
     (i) If you are a company then you must abide by the Schedule XIV of the Companies Act, 1956
     (ii) For income tax purposes you have to follow the rates given in section 32 of the Income Tax Act,  
         1961.

4) Depreciation can be charged by two methods i.e. by reducing the value of the asset or by creating Depreciation Fund

5) Any increment in the value of the asset is to be credited to Revaluation reserve and any reduction is to be debited to P & L A/c. For this you can refer to Accounting Standard 10-Accounting for Fixed Assets

6) Say the asset is sold off then any difference i.e. profit/loss is to be taken to profit and loss A/c. 

Example: You purchased an Machine in 01.04.2009 for Rs. 95000, paid Rs. 5000 for transportation charges.You charge depreciation at 10% SLM by creating a depreciaiton fund. In year 2009 following entries would be passed:

a) Plant & Machinery A/c       Dr.                     100000
            To, Bank A/c                                                           100000

b) Depreciation A/c                Dr.                       10000
            To, Depreciation Fund A/c                                     10000

c) Profit & Loss A/c                 Dr.                      10000
              To, Depreciation A/c                                               10000

Now, further assume that the asset was sold off in the Financial year 2010-11 on 05.11.10 for Rs. 75000. Then the Following entries would be passed

a)  Bank A/c                             Dr.                   75000
                To, Fixed Asset A/c                                      75000

b) Depreciation A/c(01.04.10 to 05.11.10)  6000
               To, Depreciation Fund A/c                           6000

c) Depreciation Fund A/c      Dr.                  16000
     Profit & Loss A/c               Dr.                     9000  
               To, Fixed Asset A/c                                       25000
d) Profit & Loss A/c               Dr.                     6000 
                To, Depreciation A/c                                    6000

So, in the end your fixed accoun and depreciation account will get closed and the loss and depreciation on asset stand debited to profit and loss account...:)