What is the Original Cost of Fixed Assets? How to Calculate and Determine

The original cost of fixed assets is a crucial factor in a company’s accounting operations. Accurately determining the original cost of fixed assets not only supports depreciation calculations but also helps evaluate asset utilization efficiency and accurately reflects the company’s financial situation. In this article, we will analyze the concept of the original cost of fixed assets in detail, from the basic definition to the calculation methods for specific cases in a business environment.

1. What is the original cost of fixed assets?

The original cost of fixed assets (Fixed asset costs) is the initial value of an asset when it is acquired by the business, representing the amount invested in that asset. This cost includes not only the purchase price but also related expenses such as import duties, shipping fees, installation costs, and other expenses required to bring the asset into operation.

According to Clause 5, Article 2 of Circular 45/2013/TT-BTC, the original cost of fixed assets is divided into two types:

• Original cost of tangible fixed assets: Includes all costs the business must incur to acquire the tangible fixed asset, up to the point it is ready for use.
• Original cost of intangible fixed assets: Includes all costs the business must incur to acquire the intangible fixed asset, up to the point it is ready for its intended use.

See more: What are fixed assets? Classification & Recognition criteria

2. How to calculate the original cost of fixed assets

According to Article 4 of Circular 45/2013/TT-BTC, each type of fixed asset has its own formula or method for determining the original cost, specifically:

2.1 For tangible fixed assets

The original cost of purchased tangible fixed assets (including both new and used) is determined by the following formula:

Original cost of fixed assets = Actual purchase price paid + Taxes + Related costs

Note:

• Taxes do not include refundable taxes.
• Directly related costs incurred up to the point the fixed asset is ready for use, including:
  • Interest expenses arising from the investment and purchase of the fixed asset.
  • Transportation and handling costs.
  • Upgrade costs.
  • Installation and trial run costs.
  • Registration fees.
  • Other related direct costs.

How to calculate the original cost of fixed assets in case of deferred or installment purchase:

Original cost of fixed assets = Actual purchase price paid at the time of purchase + Taxes + Related costs

How to calculate the original cost of fixed assets when purchasing buildings and architectural structures attached to land use rights:

• The land use right is separated and must meet the conditions to be recognized as an intangible fixed asset.
• For buildings and architectural structures, the original cost is determined as follows:

Original cost of fixed assets = Actual purchase price paid + Taxes + Related costs

Tangible fixed assets acquired through exchange

The original cost of a tangible fixed asset acquired through an exchange is determined by the fair value of the asset received or given up, plus any amounts payable or minus any amounts receivable, along with taxes and other direct costs related to bringing the asset into a ready-to-use state, such as transportation and handling costs.

Formula for calculating the original cost of fixed assets:

Original cost of fixed assets = Fair value of the asset received or exchanged + Amounts payable – Amounts receivable + Taxes + Related direct costs

When a fixed asset is acquired by exchanging it for a similar asset or by selling it to purchase a similar asset, the original cost of the fixed asset is determined based on the remaining value of the fixed asset given in exchange.

Formula for calculating the original cost of fixed assets in this case:

Original cost of fixed assets = Remaining value of the tangible fixed asset exchanged

2.2 For intangible fixed assets

>>> Read more: What Are Intangible Fixed Assets? How to Identify and Account for Them

Intangible fixed assets purchased in a joint-stock company

Historical cost of fixed assets = Actual purchase price payable + Taxes + Directly related costs

For intangible fixed assets purchased on a deferred or installment payment basis:

Historical cost of fixed assets = Purchase price of the asset if paid immediately at the time of purchase (excluding deferred interest)

Intangible fixed assets acquired through exchange

• For intangible fixed assets acquired in exchange for a dissimilar intangible fixed asset or another asset:

Historical cost of fixed assets = Fair value of the asset received or given up + Taxes + Directly related costs

• For intangible fixed assets acquired in exchange for a similar intangible fixed asset, or through a sale to repurchase a similar asset:

Historical cost of fixed assets = Remaining value of the intangible fixed asset exchanged

Intangible fixed assets that are granted, gifted, donated, or transferred

• In the case of being granted, gifted, or donated:

Historical cost of fixed assets = Initial fair value + Directly related costs

• In the case of being transferred:

Historical cost of fixed assets = Historical cost recorded in the accounting books of the transferring enterprise

Note: The enterprise receiving the transferred asset must fully account for factors such as historical cost, accumulated depreciation, and the remaining value of the asset as prescribed.

Internally generated intangible fixed assets

Historical cost of fixed assets = Costs directly related to the construction and trial production process

Note: Internally generated costs such as research costs, brand management costs, customer list management costs, and similar items do not meet the criteria to be considered intangible fixed assets and will be recorded as business expenses in the period.

Intangible fixed assets as land use rights

According to the provisions in Point dd, Clause 2, Article 4 of Circular 45/2013/TT-BTC dated April 25, 2013, of the Ministry of Finance, land use rights are considered intangible fixed assets and include the following cases:

• Land use rights that are transferred or for which land use fees have been paid to the State (including both definite-term and indefinite-term land use rights).
• Leased land use rights before the effective date of the 2003 Land Law, for which the land rent has been paid for the entire lease term or paid in advance for many years with at least five years remaining, and for which a certificate of land use rights has been issued by a competent authority.

Land use rights not recognized as intangible fixed assets include:

• Land use rights for which no land use fees are paid to the State.
• Land leased with a one-time payment for the entire lease term (after the effective date of the 2003 Land Law, without a certificate of land use rights being issued), the land rent amount will be gradually allocated to business expenses over the number of lease years.
• Land leased with annual payments the land rent will be recorded as a business expense in the period corresponding to the annual rent paid.

The initial historical cost of an intangible fixed asset that is a land use right is determined as follows:

Historical cost of fixed assets = The total amount paid to obtain legal land use rights + Related costs such as compensation for site clearance, site leveling, and registration fees (excluding the costs of constructing buildings on the land).

Note:

• For mixed-use buildings used for both production/business purposes and for lease or sale as prescribed by law, the enterprise must separate and account for each purpose of use. Only the portion of the mixed-use building used for production/business or for lease is recognized as a fixed asset and is subject to depreciation, except in the case of a financial lease. The portion of the asset intended for sale is not recorded as a fixed asset and is not depreciated, but will be tracked as an asset held for sale.
• If the use value for each purpose cannot be clearly distinguished, the enterprise is not allowed to record the entire value as a fixed asset and is not allowed to claim depreciation as prescribed.
• The allocation of the asset’s value and depreciation is based on the ratio of the value or actual area used for each purpose against the final construction value or the actual area used for accounting. For common assets such as playgrounds, pathways, and parking garages, the value and depreciation are also allocated accordingly to determine the value and depreciation for the mixed-use building.

Read more: Detailed Guide on Accounting for Fixed Asset Liquidation from A to Z

2.3 For fixed assets under finance lease

Original cost of fixed assets under finance lease is determined based on the fair value of the asset or the total present value of the minimum lease payments, whichever is higher (in case the fair value is higher than the present value of the minimum lease payments). In addition, direct costs related to the finance lease must be included.

Formula for calculating the original cost of fixed assets under finance lease:

Original cost of fixed assets = Fair value of the leased asset/present value of the minimum lease payments + Direct costs incurred in connection with the asset lease.

Note:

• If input VAT is deductible, the present value of the minimum lease payments does not include the VAT payable to the lessor.
• When determining the present value of the minimum lease payments, the enterprise may use the implicit interest rate, the interest rate specified in the lease contract, or the market interest rate that the lessee would have to pay on a similar loan.

3. Cases where the original cost of fixed assets can be changed

According to the provisions in Article 9 of Circular 23/2023/TT-BTC, the original cost of fixed assets can be changed in the following cases:

• Revaluation of asset value when conducting an inventory check as decided by the Prime Minister.
• Upgrading or expanding fixed assets under a project approved by the competent authority or person.
• Dismantling part or all of a fixed asset, when the value of the dismantled part is being accounted for jointly within the original cost of the fixed asset.
• Installing additional parts or multiple new parts to the fixed asset.
• Fixed assets are lost or severely damaged due to natural disasters, force majeure events, or other sudden impacts (except in cases where the asset has been restored through public asset insurance).
• Adjusting the value of land use rights according to the provisions at point a, clause 1, Article 7 of this Circular, applied in accordance with points a, b, and c, clause 1, Article 103 of Decree No. 151/2017/NĐ-CP.

4. Conclusion

Above is a detailed guide on how to calculate the original cost of fixed assets, along with cases where the original cost can be changed. We hope the information in this article is helpful to you.