How to determine balance cost

How to determine balance cost

Balance cost is understood as the cost of material and intangible assets at which they are accepted to the account. In other words, it is the property cost which is reflected in balance of the enterprise. Depreciation is applied to more exact reflection of balance cost.

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Instruction

1

The property can be accepted on balance of the enterprise for initial cost and on recovery. Initial balance cost will include costs of acquisition, construction, commissioning of new production or non-productive assets.

2

Recovery cost means the cost of acquisition of property at market prices of a certain date. If the sum of initial cost is defined as set of expenses, recovery cost pays off, proceeding from the analysis of the average market prices. Recovery cost is often corrected as a result of revaluation.

3

Balance cost is constantly specified because the property of the enterprise wears out, i.e. its depreciation is considered. Therefore the balance cost of assets is defined as a difference between the initial cost of the property accepted on balance and the sum of the added depreciation.

4

Need of determination of balance cost takes place in joint-stock companies. If the transaction connected with alienation or acquisition of property makes more than 25 percent of cost of balance property, it is considered large. The decision on such transaction is made by meeting of directors or general shareholder meeting. In case of the wrong determination of balance cost in this case, the transaction can be considered as the invalid.

5

It is necessary to remember that the balance cost of assets of the enterprise has to be defined on date of transaction. In joint-stock companies is quite problematic to make balance for intermediate date as the majority of operations is made at the end of the reporting period. Therefore the Russian legislation provided determination of balance cost of assets, for making decision on the transaction size, for the last reporting date (month or quarter).