INTRODUCTION

Management of Fixed Assets:

The selection of various Fixed Assets required creating the desired production
facilities and the decision as regards determination of the level of fixed assets is primarily the
task at he production / technical people. The decision relating to fixed assets is primarily the
task at the production / technical people. The decision relating to fixed assets involve huge
funds for a long period of time and are generally of irreversible nature affecting the long term
profitability of a concern, an unsound invest decision may prove to be total to the very
existence of the organization. Thus, management of fixed asset is of vital importance to any
organization.

The process of fixed management involves:

1. Selection of most worthy projects or alternatives of fixed assets.

2. Arranging the requires funds / Capital for the same.

The first important consideration to be acquire only that much amount of fixed assets
which will be just sufficient to ensure smooth and efficient running of the business.

In some cases it may be economical to buy certain assets in a lot size. Another
important consideration to be kept in mind is possible increase in demand o f the firm’s
product necessarily expansion of its activities. Hence a firm should that much amount of
fixed assets which could adjust to increase demand.

The third aspect of fixed assets management is that a firm must ensure buffer stocks
of certain essential equipments / services to ensue uninterrupted production in the events of
emergencies. Sometime, there may be a breakdown in some equipment or services affecting
the entire production. It is always better to have some alternative arrangements to deal with
such situations. But at the same time the cost of carrying such buffer stock should also be
evaluated. Efforts should also be made to minimize the level of buffer stock of fixed assets be
encouraging their maximum utilization during learn period, transferring a part of peak period
and living additional capacity.
Fixed Assets:

Fixed assets are those which are required and held permanently for a pretty long time
in the business and are used for the purpose of earning profits. The successful continuance of
the business depends upon the maintenance of such assets. They are not meant for resale in
the ordinary course of business and the utility of these remains so long as they are in working
order, so they are also known as capital assets. Land and buildings, plant and machinery,
motor vans, furniture and fixture are some examples of these assets.

Financial transactions are recorded in the books keeping in view the going concern
aspect of the business unit. It is assumed the business unit a reasonable expectation of
continuing business at a profit for an indefinite period of time. It will continue to operate in
the future. This assumption provides much of the justification for recording fixed assets at
original cost and depreciating them in a systematic manger without reference to their current
values if there is no immediate expectation of selling them. Fixed resale, so they are shown at
their book values (i.e., cost less depreciation provided) and not at their current realizable
values

The market value of a fixed asset may change with the passage of time, but for
accounting purpose it continues to be shown in the books as its book value, i.e., the cost at
which it was purchased minus depreciation proved up to date. The cost concept of
accounting, deprecation calculated on the basis of historical costs of old assets is usually
lower than that of those calculated at current vale or replacement value. This results in more
profits on paper which, if distributed in full, will lead to reduction of capital.

Need for the Study:

Valuation of fixed assets is important in order to have fair measure of profit or loss
and financial position of the concern.

Fixed assets are meant for use for many years. The value of these assets decreases
with their use or with time or for other reasons. A portion of fixed assets reduced by use is
converted into cash though charging depreciation. For correct measurement of income proper
measurement of depreciation is essential, as depreciation constitutes a part of the total cost of
production.
Objectives of the study:

 To analyze the proportion of fixed assets amount contributed for payment of owner
feeds and long term liabilities at LG ELECTRONICS Khammam.

 To analyze the techniques involved in calculation of depreciation at LG

ELECTRONICS Khammam.

 To analyze the fixed assets turnover at LG ELECTRONICS Khammam.

 To analyze the amount of capital expenditure made by LG ELECTRONICS

Khammam

 To draw conclusions and offer suggestions.

METHODOLOGY OF THE STUDY

This data had been collected into two ways

 Primary data

 Secondary data

Primary data:

The data collected to interactions with the member’s executives and other employees
in the company.

Secondary data:

The data collected through annual reports, journals, magazines, internet etc...

Scope of the Study:

The scope of the study is confined to fixed assets management at LG ELECTRONICS

KHAMMAM.
Limitations of the study:

 The study is limited up to the date and information provided by LG ELCTRONICS

INDIA LTD and its reports.

 The reports will not provide exact fixed Assets status and position in LG
ELECTRONICS; it may varying from time to time and situation to situation.

 This report is not helpful in investing in LG ELECTRONICS, either through

disinvestments or capital market.

 The study is based on the secondary data.

 INDUSTRY PROFILE

Electronics is the study of the flow of charge through various materials and devices such as,
semiconductors, resistors, inductors, capacitors, nano-structures, and vacuum tubes. All
applications of electronics involve the transmission of either information or power. Although
considered to be a theoretical branch of physics, the design and construction of electronic
circuits to solve practical problems is an essential technique in the fields of electronics
engineering and computer engineering.

The study of new semiconductor devices and surrounding technology is sometimes

considered a branch of physics. This article focuses on engineering aspects of electronics.
Other important topics include electronic waste and occupational health impacts of
semiconductor manufacturing.

Consumer Durables

(Data table headings are shown Year-wise in descending order)

 Air Conditioners
 Bicycles
 Crystal Glass
 Domestic Electrical Appliances
 Gems and Jewellery
 Glass Products
 Kitchen Equipment
 Liquefied Petroleum Gas Cylinders
 Microwave Ovens
 Refrigerators
 Sewing Machines
 Sunglasses
 Toys and Games
 Washing Machines and Vacuum Cleaners
Consumer electronics are electronic equipment intended for everyday use, most often in
entertainment, communications and office productivity. Radio broadcasting in the early 20th
century brought the first major consumer product, the broadcast receiver.

Later products include personal computers, telephones, MP3 players, audio equipment,
televisions, calculators, GPS automotive electronics, digital cameras and players and
recorders using video media such as DVDs, VCRs or camcorders. Increasingly these products
have become based on digital technologies, and have largely merged with the computer
industry in what is increasingly referred to as the consumerization of information technology.

The CEA (Consumer Electronics Association) estimates 2007 US Consumer Electronics sales
at 150 billion dollars.[1]

Consumer electronics are manufactured throughout the world, although there is a particularly
high concentration of headquarters, factories, research and development activity in East Asia,
especially in Japan.

The latest consumer electronics are previewed yearly at the Consumer Electronics Show in
Las Vegas, Nevada, at which many industry pioneers speak.

One overriding characteristic of consumer electronic products is the trend of ever-falling

prices. This is driven by gains in manufacturing efficiency and automation, lower labor costs
as manufacturing has moved to lower-wage countries, and improvements in semiconductor
design.

Semiconductor components benefit from Moore's Law, an observed principle which states
that, for a given price, semiconductor functionality doubles every two years.

While consumer electronics continues in its trend of convergence, combining elements of

many products, consumers face different decisions when purchasing.

There is an ever increasing need to keep product information updated and comparable, for the
consumer to make an informed choice. Style, price, specification and performance are all
relevant.
There is a gradual shift towards e-commerce web-storefronts.

Many products include Internet connectivity using technologies such as Wi-Fi, Bluetooth or
Ethernet. Products not traditionally associated with computer use (such as TVs or Hi-Fi
equipment) now provide options to connect to the Internet or to a computer using a home
network to provide access to digital content.

The desire for High definition (HD) content has led the industry to develop a number of
technologies, such as WirelessHD or ITU-T G.hn, which are optimized for distribution of HD
content between CE devices in a home.

Standby power used by consumer electronics and appliance while they are turned off
accounts for 5 to 10% of household energy consumption, adding an estimated $3 billion to
annual energy costs in the USA. "In the average home, 75% of the electricity used to power
home electronics is consumed while the products are turned off."[3]

A product teardown, or simply teardown, is the act of disassembling a product, such as a

television set, to identify its component parts and functions.

For products having secret technology, such as the Mikoyan-Gurevich MiG-25, the process
may be secret. For others, including consumer electronics, the results are typically
disseminated through photographs and component lists so that others can make use of the
information without having to disassemble the product themselves.

This information can be of interest to hobbyists, but can also used commercially by the
technical community to find out, for example, what semiconductor components are being
utilized in consumer electronic products, such as the video game console or Apple's iPhone.

Such knowledge can aid understanding of how the product works, including innovative
design features, and can facilitate estimating the bill of materials (BOM).

The financial community therefore has an interest in teardowns, as knowing how a company's
products are built can help guide a stock valuation. Manufacturers are often not allowed to
announce what components are present in a product due to non-disclosure agreements
(NDA).
Identifying semiconductor components in systems has become more difficult over the past
years. The most notable change started with Apple's 8GB iPod nano, [1][2] were repackaged
with Apple branding.

This makes it more difficult to identify the actual device manufacturer and function of the
component without performing a 'decap' – removing the outer packaging to analyze the die
within. Typically there are markings on the die inside the package that can lead experienced
engineers to who actually created the device and what functionality it performs in the system.

Teardowns have also been performed in front of a live studio audience at the Embedded
Systems Conference (ESC).

The first live teardown was performed on a Toyota Prius at the Embedded Systems
Conference in San Jose, April 2006.

Since that time, additional live teardowns have been performed, most recently being the Sony
OLED TV, Gibson Self-Tuning Guitar, SuitSat space suit, and Sony Rolly MP3 player.

Major companies that publicize their teardowns include Portelligent and Semiconductor
Insights, both of which write featured articles in EETimes and TechOnline on their findings.
Both companies were acquired by TechInsights, a division of United Business Media in 2007.
While Semiconductor Insights still remains focused on their other business opportunities,
their teardown services, as well as Portelligent, are now part of TechOnline, which is a
subgroup of United Business Media's TechInsights division.

There also appear to be three main authors from these companies that write the articles.
David Carey, President for Portelligent, Jeff Brown, Senior Analyst for Portelligent, and
Gregory A. Quirk, Technical Marketing Manager for TechOnline.

Leeds Electronic Industry Inc is one of Leading Stocking Distributor for Electronic
Components Worldwide with Branches India, Hong Kong, China, Kuwait and USA.

We stock and Distribute Obsolete components, Ic chips, Semiconductors,Smd Passive

components, Power Modules,Smd capacitors,Smd Resistors from all Famous Brands.
Our Worldwide Network and offices, warehouses are Able to respond our Clients in time and
supply Quality Components with Shortest Delivery period

Since established in 2006 with 15 years background experiences in Components and well-
known staffs to support our Clients with professionally and efficiently

Our Components are being Original, and From Original Manufacturer, Competitive Price
with All Quality standards for OEM, EMS Manufacturers, Contract Manufactures, Embedded
Technologies, Distributors and Service Companies.

Our Range of Components is usable for Commercial, Industrial, Military, Navigation,

Aviation, Textiles fields.

Our Distribution Already fulfilled More OEMS Companies worldwide For their
Requirements of BOM, Obsolete, Proto type Components and Free of Samples for testing
and R&D..

LG Electronics Inc., together with its subsidiaries, engages in the manufacture and sale of
consumer electronics, home appliances, computer products, and mobile phones worldwide.
The company offers TV/audio/video products, including liquid crystal display (LCD)
televisions (TVs), plasma TVs, color TVs, home theatre system, music system, digital
versatile disc players; mobile phones; and computer products comprising LCD monitors,
projectors, notebooks, and optical media products.

It also provides home appliances consisting of refrigerators, washer dryer combos, washing
machines, dish washer, micro wave oven, and vacuum cleaners; residential air conditioners,
commercial air conditioners; and refrigerator compressors.

t has a collaboration agreement with LifeSize Communications, Inc. to introduce an

integrated communications solution to combine high definition (HD) video and voice
communications, housed within a 24-inch HD display. LG Electronics Inc. has a strategic
partnership with MiniFrame Ltd. to offer a joint solution for the point of sale (pos) market.

The company was formerly known as GoldStar and changed its name to LG Electronics Inc.
in 1995. LG Electronics Inc. was founded in 1958 and is based in Seoul, South Korea.

LG Electronics Inc. Presents at The 12th Credit Suisse Asian Technology Conference,
LG Electronics Inc. Presents at The 12th Credit Suisse Asian Technology Conference, Sep-
14-2012 . Venue: Taipei, Taiwan. LG Electronics Inc. to Launch Optimus 3D Smartphone in
S.

Korea

LG Electronics Inc. announced that it will launch the Optimus 3D smartphone in S. Korea
this week, hoping the new handset will help turn around its loss-making mobile business. LG
will start receiving pre-orders for the Optimus 3D smartphone on July 08, 2012, before the
handset will be exclusively released via South Korea's top mobile carrier SK Telecom.

The company hopes the Optimum 3D, which can playback, record and share 3-D
images and 3-D games, will put the company back in the smart phone race and help 3-D
features become mainstream in the consumer electronics market. LG signed a partnership
with Game loft Inc. to preload three 3-D game titles from the New York city-based mobile
game developer onto its new smart phone. Users can upload, download and playback 3-D
videos from the world's largest video sharing site, YouTube, and the company aims to support
third-party developers to create new applications with 3-D features. The 4.3-inch screen of
the Optimum 3D gives users the illusion of images popping out of the screen even without
wearing special glasses.

The retail price for the Optimus 3D is KRW 800,000 ($750). LG Electronics Inc. and Hitachi
Plant Technologies, Ltd. to Form Joint Venture in Water Business. LG Electronics Inc. and
Hitachi Plant Technologies Ltd. have agreed to establish a joint venture in the water business.

LGE, Hitachi Ltd. and Hitachi Plant Technologies will combine LGE's strength in marketing,
planning and manufacturing technology with the Hitachi Group's technological and
engineering strengths in water treatment systems and information control systems, to expand
in the water business. The joint venture company, LG-Hitachi Water Solutions Co., Ltd. is
scheduled to be established in October 2012, with LGE providing 51% of the capital and
Hitachi Plant Technologies 49%. The new company will initially focus on manufacturing and
sales of water treatment equipment, EPC*1 for water treatment systems and O&M*2 for
water treatment facilities, centered mainly on wastewater treatment facilities and drinking
water and sewage treatment facilities in Korea, and research and development of water
treatment technology. The joint venture will also plan for future expansion in the water
business in other countries.
 COMPANY PROFILE

History

Established in 1958, LG Electronics, Inc. (LG) is a global leader and technology

innovator in consumer electronics, home appliances and mobile communications, employing
more than 82,000 people working in over 110 operations including 81 subsidiaries around the
world.

Comprising four business units - Mobile Communications, Digital Appliance,

Digital Display and Digital Media with 2006 global sales of USD 38.5 billion - LG is the
world's leading producer of CDMA/GSM handsets, air conditioners, front-loading washing
machine, optical storage products, DVD players, flat panel TVs and home theater systems.

Major Awards Received by LG Electronics

Following its "Select & Focus" strategy, LG Electronics has resolutely maintained its
efforts towards corporate restructuring. In the process, many of its accomplishments in its
management innovation and productivity innovation activities were recognized with awards.

Sales and Profit

For the quarter, the company posted a revenue of KRW 6.03 trillion (USD 6.43 billion) on a
parent basis, increased by 4.0% from a year earlier thanks to robust sales of premium
handsets and home appliances. On a consolidated basis which includes sales of LG’s overseas
subsidiaries, revenue reached KRW 9.59 trillion (USD 10.22 billion), increased by 8.3% from
the previous year.

Operating profit was KRW 173 billion (USD 184 million) on a parent basis with a
margin of 2.9% compared to KRW 191 billion (USD 204 million) from a year earlier
primarily due to a sluggish display and media business in spite of a remarkable turnover in
mobile business and solid performance of appliance business. Situation on a consolidated
basis was KRW 28 billion (USD 29.4 million) hurt by overseas subsidiaries’ operating loss of
KRW 133 billion (USD 142 million).
 Net Profit was a loss of KRW 123 billion (USD 131 million) on a parent basis mainly
due to loss in equity method of KRW 193 billion (USD 205 million) from LG.Philips LCD
and overseas subsidiaries.

Mobile Communication Company recorded sales of KRW 2.51 trillion (USD 2.67
billion), 14.7% higher than a year earlier. Revenue from the handset business rose 17.8% to
KRW 2.35 trillion (USD 2.50 billion) from KRW 2.00 trillion (USD 2.05 billion).
Consolidated sales based total shipments were 15.8 million units, compared to 14.1 million
units YoY and 17.9 million units QoQ. Success of ‘Shine’ phone and DMB line-ups in Korea
pushed up shipments 46% QoQ, and continued high demand of premium ‘Chocolate’ phone
in GSM open-markets led a shift of 28% QoQ. Strong growth in WCDMA phones sales was
realized in Korea and the United States. Operating margin was 4.7%, a bit less than 6.6% on a
parent basis, but recovered from a loss of 2.6% from the first quarter of 2006.Digital
Appliance Company sales rose 15.1% to KRW 2.94 trillion (USD 3.13 billion)from a year
earlier, thanks to growth in premium product lines. Improvement of an operating profit was
remarkable. KRW 169 billion (USD 17.9 million) was 43.6% higher than a year earlier and
37.1% from the previous quarter. Operating margin increased 1.1% point to 5.7% despite
won appreciation and rise in material costs. On a parent basis the margin rose 1.8% point to
12.0%.
THEORETICAL FRAMEWORK

 Assets Management

Assets may be described as valuable resources owned by a business which were acquired at a
measurable money cost. As an economic resource, they satisfy three requirements. In the first
place, the resource must be valuable. A resource is valuable if (i) it is cash/convertible into
cash; or (ii) It can provide future benefits to the operations of the firm. Secondly, the resource
must be owned. Mere possession or control of a resource would not constitute an asset; it
must be owned in the legal sense of the term. Finally, the resource must be acquired at a
measurable money cost. In case where an asset is not acquired for cash/promise to pay cash,
the test is what it would have cost had cash been paid for it.

It is not necessary; in the financial accounting sense of the term, for control of access
to the benefit to be legally enforceable for a resource to be an asset, provided the entity can
control its use by other means.It is important to understand that in an accounting sense an
asset is not the same as ownership. In accounting, ownership is described by the term
"equity," (see the related term shareholders' equity). Assets are equal to "equity" plus
"liabilities."

The accounting equation relates assets, liabilities, and owner's equity:

The accounting equation is the mathematical structure of the balance sheet.Assets are usually
listed on the balance sheet. It has a normal balance, or usual balance, of debit (i.e., asset
account amounts appear on the left side of a ledger). Similarly, in economics an asset is any
form in which wealth can be held.

Probably the most accepted accounting definition of asset is the one used by the International
Accounting Standards Board. The following is a quotation from the IFRS Framework: "An
asset is a resource controlled by the enterprise as a result of past events and from which
future economic benefits are expected to flow to the enterprise."
Assets are formally controlled and managed within larger organizations via the use of asset
tracking tools. These monitor the purchasing, upgrading, servicing, licensing, disposal etc., of
both physical and non-physical assets.

The assets in the balance sheet are listed either in order of liquidity-promptness with which
they are expected to be converted into cash-or in reverse order, that is, fixity or listing of the
least liquid (fixed) first followed by others. All assets are grouped into categories, that is,
assets with similar characteristics are put in one category. The assets included in one category
are different from those in other categories. The standard classification of assets divides them
into (1) fixed assets, (2) current assets, (3) investments, and (4) other assets.

Tangible fixed assets are those, which have physical existence and generate goods and
services. Included in this category are land, building, plants, machinery, furniture, and so on.
They are shown in the balance sheet, in accordance with the cost concept, at their cost to the
firm at the time they were Purchased. Their cost is allocated to/charged against/spread over
their useful life. The yearly charge is referred to as depreciation. As a result, the amount of
such assets shown in the balance sheet every year declines to the extent of the amount of
depreciation charged in that year and by the end of the useful life of the asset it equals the
salvage value, if any. Salvage value signifies the amount realized by the sale of the discarded
asset at the end of its useful life.

Intangible assets do not generate goods and services directly. In a way, they reflect the
rights of the firm. This category of assets comprises patents, copyrights, trade marks and
goodwill. They confer certain exclusive rights to their owner’s patents conger exclusive rights
to use an invention, copyrights relate to production and sale of literary, musical and artistic
works, trade marks represent exclusive right to use certain names, symbols, labels, designs,
and so on intangible fixed assets are also written-off over a period of time.

Intangible assets lack physical substance and arise form a right granted by the government or
another company. Intangibles may be acquired or developed internally. Examples of rights
granted by the government are patents, copyrights, and trademarks, while am example of a
privilege granted by another company is a franchise. Other types of intangibles include
organization costs, leasehold improvements, and goodwill. Organization costs are the
expenditures incurred in starting a new company; an example would be legal fees. Leasehold
improvements are expenditures made by a tenant to his or her leased property, such as the
cost of putting up new paneling. Goodwill represents the amount paid for another business in
excess of the fair market value of its tangible net assets. For example, if company A paid $
1000,000 for company B’s net assets having a fair market value of $84,000, the amount paid
for goodwill is $16,000. Goodwill can be recorded only when a company purchases another
business. The amount paid for the goodwill of a business may be based upon the acquired
firm’s excess earnings over other companies in the industry. Internally developed goodwill
(e.g., good customer relations) is not recorded in the accounts.

ACCOUNTING FOR INTANGIBLE ASSETS

APB Opinion 17 specifies the requirements for accounting for intangible assts. Intangibles
that have been acquired, such as goodwill, should be recorded at cost. In the event that an
intangible is acquired for other than cash, it should be reflected at either the fair market value
of the consideration given or the fair market value of the right received, whichever is more
clearly evident. Intangibles should not be arbitrarily written off if they still have value.

When identifiable intangibles are internally developed (e.g., patents), they should be recorded
as assets and reflected at cost. If they are not identifiable, they should be expensed.

Intangible assets must be amortized over the period benefited not to exceed 40 years.
Amortization is a term used to describe the systematic write-off to expense of an intangible
asset’s cost over its economic life. The straight-line method of amortization is used. The
amortization entry is Amortization expense Intangible asset. The credit is made directly to the
given intangible asset account. However, it would not be incorrect to credit an accumulated
amortization account, if desired. Some intangibles have a limited legal life. An example is
patents, which have a legal life of 17 years.

DEFERRED CHARGES

Deferred charges are of along-term, nonrecurring nature. They are allocated to a number of
future periods. Examples are start-up costs and plant rearrangement costs.

Deferred charges are customarily listed as the last asset category in the balance sheet since
their dollar value is usually insignificant relative to total assets.
OTHER ASSETS

When non-current assets cannot be properly placed into the asset classifications already

Discussed, they may be included in the Other Assets category. Placement of an item in this
classification depends upon its nature and dollar magnitude. However, this classification
should be used as a last resort.

COLLECTIBLE ASSETS

Not surprisingly, periodic disenchantment with returns on marketable securities has

led some investors to examine a host of tangible assets that are normally considered only by
“collectors”. The average returns on collectibles such as Chinese ceramics, coins, diamonds,
paintings, and stamps have on occasion been quite high, but generally such assets also
experience periods of negative returns. This fluctuation is not surprising because if one (or
more) type of collectible had provided consistently high returns, many investors would have
been attracted to it and would have bid its price up to a level where high returns would no
longer have been possible. In deed, more recent studies of prints and paintings have
concluded that their risk and return characteristics make them relatively unattractive
investments for risk-averse investors.

In a sense, a collectible asset often provides income to the owner in the form of consumption.
For example, an investor can admire a Roberto Clementre rookie baseball card, sit on a
Chippendale chair, gaze upon a Georgia O’ Keefe painting, play a Stradivarius violin, and
drive a Stutz Bearcat automobile. Value received in this manner is not subject to income
taxation and is thus likely to be especially attractive for those in high tax brackets. However,
the value of such consumption depends strongly on one’s preferences.

If markets are efficient, collectible assets will be priced so that those who enjoy them most
will find it desirable to hold them in greater-than-market-value proportions, whereas those
who enjoy them least will find it desirable to hold them in less-than-market-value proportions
(or, in many cases, not at all).

Institutional funds and investment pools have been organized to own collectibles of one type
or another. These arrangements are subject to serious question if they involve locking such
objects in vaults where they cannot be seen by those who derive pleasure from this sort of
consumption. On the other hand, if the items are rented to others, the only loss may be that
associated with the transfer of a portion of the consumption value to the government in the
form of a tax on income.

Investors in collectibles should be aware of two especially notable types of risk. The first is
that the bid-ask spread is often very large. Thus an investor must see a large price increase
just to recoup the spread and break even. The second is that collectibles are subject to fads
(that risk has been referred to as

stylistic risk). For example, Chinese ceramics may be actively sought by many investors
today, leading to high prices and big returns for earlier purchasers. However, they may fall
out of favor later on and plunge in value. Unlike financial assets, there is no such thing as fair
value for collectibles that can act as a kind of anchor for the market price.

GOLD

In the United States, private holdings of gold bullion were illegal before the 1970s. In other
countries, investment in gold has long been a tradition. According tone estimate, at the end of
1984 gold represented over 6% of the world market wealth portfolio.

History suggests gold has performed like other types of collectibles in that it has had periods
of high returns but also periods of low returns (particularly since the early 1980s).
Furthermore, gold has had a high standard deviation, suggesting that by itself it has been a
risky investment. However, for any single investment, risk and return are only parts of the
story. Correlations of an asset’s returns with the returns on other assets are also relevant. In
general, gold price changes have a near-zero correlation with stock returns. Gold thus appears
to be an effective diversifying asset for an equity investor. Furthermore, gold prices generally
have been highly correlated with the rate of inflation in the United States as measured by
changes in the Consumer Price Index. This is consistent with gold’s traditional role as a
hedge against inflation, because higher inflation generally brings higher gold prices. Investors
interested in gold need not restrict themselves to bullion. Other possibilities range from
stocks of gold mining companies to gold futures to gold coins and commemoratives.
Furthermore, there are other types of precious metals, such as silver, that investors may want
to consider
Current Assets The second category of assets included in the balance sheet are current
assets. In contrast to fixed assets, they are short-term in nature. They refer to
assets/resources, which are either held in the form of cash or ate expected to
be realized to cash within the accounting period in the normal operation cycle
of the business. The term ‘operating cycle’ means the time span during which
cash is converted into inventory, inventory, into receivable /cash sales and
receivables into cash. Conventionally, such assets are held for a short period of
time, usually not more than a year. These are also known as liquid assets.
Current assets include cash, marketable securities, accounts receivable
(debtors), notes/bills receivables and inventory.

Cash is the most liquid current asset and includes cash to hand and cash at bank. It
provides instant liquidity and can be used to meet obligations/acquire without assets without
any delay.

Marketable securities are short-term investments, which are both readily marketable and
are expected to be converted into cash within a year. They provide an outlet to invest
temporary surplus /idle funds/cash. According to generally accepted accounting principles,
marketable securities are shown in the balance sheet below the cost or the market price.
When, however, show at cost, the current market value is also shown in parenthesis.

Accounts receivable represent the amount that the customers owe to the firm, arising from
the sale of goods o credit they are shown in the balance sheet at the amount owed less an
allowance (bad debts) for the portion which may but be collected.

Notes/bills payable refer the amounts owned by outsiders for which written
acknowledgments of the obligations are available.

Inventory means the aggregate of those items which are (i) held for sale in the ordinary
course of business (finished goods), (ii) in the process of production for such sales (work-in-
process) or (iii) to be currently consumed in the production of goods and services (raw
materials) to be available for sale. It is the least liquid current assets. Included in inventory
are raw materials, working process (semi-finished) and finished goods. Each of these serves a
useful purpose in the process of production and sale. Inventory is reported in the balance
sheet at the cost or market value whichever is lower.
Investments the third category of fixed assets is investments. They represent investments of
funds in the securities of another company. They are long-term assets outside the business of
the firm. The purpose of such investments is either in earn return or/and to control another
company. It is customarily shown in the balance sheet at costs with the market value shown
in parenthesis.

Other assets included in this category of assets are what are called deferred charges that are
advertisement expenditure preliminary expenses and so on. They are pre-payment for
services /benefits for the periods exceeding the accounting period.

Liabilities

The second major content of the balance sheet is liabilities defined as the claims of outsiders
that is, other than owners. The assets have to be financed by different sources. One of source
of funds is borrowing – long-term as well as short-term. The firms can borrow on a long-term
basis from financial institutions/banks or through bonds/mortgages/debentures, and so on.
The short-term borrowing may be in the form of purchase of goods and services on credit.
These outside sources from which a firm can borrow are termed as liabilities. Since they
finance the assets, they are, in a sense, claims against the assets. The amount shown against
the liability items is on the basis of the amount owned, not the amount payable. Depending
upon the periodicity of the funds, liabilities can be classified into (1) long-term liabilities and
(2) current liabilities.

Long-term Liabilities They are so called because the sources of funds included in them are
available for periods exceeding one year. In other words, such liabilities represent obligations
of a firm payable after the accounting period.

Debentures or bonds are issued by a firm to the public to raise debt. A debenture or a bond
is a general obligation of the firm to pay interest and return the principal sum as per the
agreement. Loan raised through ‘Issue of debentures or bonds may be secured or unsecured.

Secured loans are the long-term borrowings with fixed assets pledged as security. Term loans
from financial institutions and commercial banks are secured against the assets of the firm.
They have to be repaid/redeemed either in lump sum at the maturity of the loan/debenture or
in installments over the life of the loan. Long-term liabilities are shown in the balance sheet
net of redemption/repayment.

Current Liabilities In contrast, the long term-liabilities, such liabilities are obligations to
outsiders repayable in a short period, usually within the accounting period or the operating
cycle of the firm. It can be said to be the counterpart of the current assets. Conventionally,
they are paid ;out of the current assets; in some cases, however existing current liabilities can
be liquidated through the creation of additional current liabilities.

Sundry creditors or accounts payable represent the current liability towards suppliers from
whom the firm has purchased raw materials on credit. This liability is shown in the balance
sheet till the payment has been made to the creditors.

Bills payable are the promises made in writing by the firm to make payment of a specified
sum to creditors at some specific date. Bills are written by creditors over the firm and become
bill payable once they are accepted by the firm. Bills payable have a life of less than a year;
therefore, they are shown as current liabilities in the balance sheet.

Bank borrowings form a substantial part of current liabilities of a large number of

companies in India. Commercial banks advance short-term credit to firms or financing their
current assets. Banks may also provide funds (term loans) for a financing a firm’s fixed
assets. Such loans will be grouped under long-term liabilities. In India, it is a common
practice to include both short and long-term borrowings under loan funds.

Provisions are other types of current liabilities. They include provision for taxes or
provision for dividends. Every business has to pay taxes on its income. Usually, it takes some
time to finalize the amount of tax with the tax authorities. Therefore, the amount of tax is
estimated and shown as provision for taxes or tax liability in the balance sheet. Similarly,
provision for paying dividends to shareholders may be created and shown as current liability.

Expenses payable or outstanding expenses are also current liabilities. The firm may owe
payments to its employees and others at the end of the accounting period for the services
received in the current year. These payments are payable within a very short period.
Examples of outstanding expenses are wages payable, rent payable, or commission payable.

Income received in advance is yet another example of current liability. A firm can
sometimes receive income for gods or services to be supplied in the future. As goods or
services have to be provided within the accounting period, such receipts are shown as current
liabilities in the balance sheet.

Installments of long-term loans are payable periodically. That portion of the long-term
loan which is payable in the current year will for part of current liabilities.

Deposits from public may be raised by a firm for financing its current assets. These may
therefore classify under current liabilities. It may be noted that public deposits may be raised
for duration of one year through three years.

How should the changing value of a fixed asset be reflected in a company's accounts?

The benefits that a business obtains from a fixed asset extend over several years. For
example, a company may use the same piece of production machinery for many years,
whereas a company- owned motor car used by a salesman probably has a shorter useful life.

By accepting that the life of a fixed asset is limited, the accounts of a business need to
recognize the benefits of the fixed asset as it is "consumed" over several years.

This consumption of a fixed asset is referred to as depreciation.

Definition of depreciation

Financial Reporting Standard 15 (covering the accounting for tangible fixed assets) defines
depreciation as follows:

"the wearing out, using up, or other reduction in the useful economic life of a tangible fixed
asset whether arising from use, effluxion of time or obsolescence through either changes in
technology or demand for goods and services produced by the asset.'

A portion of the benefits of the fixed asset will be used up or consumed in each accounting
period of its life in order to generate revenue. To calculate profit for a period, it is necessary
to match expenses with the revenues they help earn. In determining the expenses for a period,
it is therefore important to include an amount to represent the consumption of fixed assets
during that period (that is, depreciation).

In essence, depreciation involves allocating the cost of the fixed asset (less any residual
value) over its useful life. To calculate the depreciation charge for an accounting period, the
following factors are relevant:

- The cost of the fixed asset;

- The (estimated) useful life of the asset;

- The (estimated) residual value of the asset.

What is the relevant cost of a fixed asset?

The cost of a fixed asset includes all amounts incurred to acquire the asset and any amounts
that can be directly attributable to bringing the asset into working condition.

Directly attributable costs may include:

- Delivery costs

- Costs associated with acquiring the asset such as stamp duty and import duties

- Costs of preparing the site for installation of the asset

- Professional fees, such as legal fees and architects' fees

Note that general overhead costs or administration costs would not costs of a fixed asset (e.g.
the costs of the factory building in which the asset is kept, or the cost of the maintenance
team who keep the asset in good working condition)

The cost of subsequent expenditure on a fixed asset will be added to the cost of the asset
provided that this expenditure enhances the benefits of the fixed asset or restores any benefits
consumed. This means that major improvements or a major overhaul may be capitalized and
included as part of the cost of the asset in the accounts. However, the costs of repairs or
overhauls that are carried out simply to maintain existing performance will be treated as
expenses of the accounting period in which the work is done, and charged in full as an
expense in that period

DEPRECIATION AND SALVAGE VALUE

Although the useful life of equipment (a fixed asset) may be long, it is nonetheless
limited. Eventually the equipment will lose all productive worth and will possess only
salvage value (scrap value). Accounting demands a period-by-period matching of costs
against income. Hence, the cost of a fixed asset (over and above its salvage value) is
distributed over the asset’s estimated lifetime. This spreading of the cost over the periods
which receive benefits is known as depreciation.

The depreciable amount of a fixed asset – that is, cost minus salvage value – may be
written off in different ways. For example, the amount may be spread evenly over the years
affected, as in the straight-line method. The units of production method bases depreciation for
each period on the amount of output. Two accelerated methods, the double declining balance
method and the sum-of-the years’-digits method, provide for greater amounts of depreciation
in the earlier years.

METHODS OF DEPRECIATION

1. STRAIGHT-LINE METHOD

This is the simplest and most widely used depreciation method. Under this method an
equal portion of the cost (above salvage value) of the asset is allocated to each period of use.
The periodic depreciation charge is expressed as

Cost – Salvage Value

= Depreciation

Estimated life

2. UNITS OF PRODUCTION METHOD

 Where the use of equipment varies substantially from year to year, the units-of-
production method is appropriate for determining the depreciation. For example, in some
years logging operations may be carried on for 200 days, in other years for 230 days, in still
other years for only 160 days, depending on weather conditions. Under this method,
depreciation is computed for the appropriate unit of output or production (such as hours,
miles, or pounds) by the following formula:

Cost – Salvage

= Unit Depreciation

Estimated units of production during lifetime

The total number of units used in a year is then multiplied by the unit depreciation to arrive at
the depreciation amount for that year. We can express this as

Unit depreciation x usage = depreciation

Or Cost – Salvage

X usage = depreciation

Estimated life (in units)

This method has the advantage of relating depreciation cost directly to income

1. DOUBLE DECLINING BALANCE METHOD

The double declining balance method produces the highest amount of depreciation
in the earlier years. It does not recognize salvage or scrap value. Instead, the book value of
the asset remaining at the end of the depreciation period becomes the salvage or scrap value.
Under this method, the straight-line rate is doubled and applied to the declining book balance
each year. Many companies prefer the double declining balance method because of the
greater “write-off” in the earlier years, a time when the asset contributes most to the business
and when the expenditure was actually made. The procedure is to apply a fixed rate to the
declining book value of the asset each year. As the book value declines, the depreciation
becomes smaller.

100%
 X 2 = depreciation rate

Estimated life in years

2. SUM-OF-THE-YEARS-DIGITS METHOD

With this method, the years of asset’s lifetime are labeled 1,2,3 and so on, and
the depreciation amounts are based on a series of fractions that have the sum of the years’
digit as their common denominator. The greatest digit assigned to a year is used as the
numerator for the first year, the next greatest digit for the second year, and so forth.

What is the Useful Life of a fixed asset?

An asset may be seen as having a physical life and an economic life.

Most fixed assets suffer physical deterioration through usage and the passage of time.
Although care and maintenance may succeed in extending the physical life of an asset,
typically it will, eventually, reach a condition where the benefits have been exhausted.

However, a business may not wish to keep an asset until the end of its physical life. There
may be a point when it becomes uneconomic to continue to use the asset even though there is
still some physical life left.

The economic life of the asset will be determined by such factors as technological progress
and changes in demand. For purposes of calculating depreciation, it is the estimated
economic life rather than the potential physical life of the fixed asset that is used.

What about the Residual Value of a fixed asset?

At the end of the useful life of a fixed asset the business will dispose of it and any amounts
received from the disposal will represent its residual value. This, again, may be difficult to
estimate in practice. However, an estimate has to be made. If it is unlikely to be a significant
amount, a residual value of zero will be assumed.

RATIO ANALYSIS:
 Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “The
indicated quotient of two mathematical expression” and as “The relationship between for
evaluating the financial position and performance of firm. The absolute accounting figure
reported in financial statement do not private a meaningful understanding of the performance
and financial position of a firm. An accounting figure conveys meaning when it is related to
some other relevant information.

Ratios help to summarize large quantities of financial data and to make qualitative
judgments about the firm’s financial performance.

1. Fixed Assets to Net Worth Ratio:

This ratio establishes the relationship between Fixed Assets and net worth.

Net Worth = Share Capital + Reserves & Surplus + Retained Earnings.

Fixed Assets

Fixed assets to Net worth Ratio=------------------ X 100

Net Worth

This ratio of “Fixed Assets to Net Worth” indicates the extent to which shareholder
funds are sunk into the fixed assets.

Generally, the purchase of fixed assets should be financed by shareholders, equity

including reserves & surpluses and retained earnings. If the ratio is less than 100 % it implies
that owners funds are more than total fixed assets and a part of the working is provided by the
shareholders. When the ratio is more 100% it implies that owner’s funds are not sufficient to
finance the fixed assets and the finance has to depend upon outsiders to fiancé the fixed
assets. There is no “rule of thumb” to interpret this ratio but 60% to 65 % is considered to be
satisfactory ratio in case of industrial undertaking.

2. Fixed Assets Ratio:

. This ratio explains whether the firm has raised adequate long term funds to meet its
fixed assets requirements and is calculated as under.

Fixed assets (after depreciation)

-------------------------------------------

Capital Employed

This ratio gives an idea as to what part of the capital employed has been used in purchasing
the fixed assets for the concern. If the ratio is less than one it is good for the concern.

3. Fixed assets as a percentage to current Liabilities:

This ratio measures the relationship between fixed assets and the funded debt and is a
very useful so the long term erection. The ratio can be calculated as below.

Fixed Assets

Fixed assets as a percentage to current Liabilities = ----------------------------

Current Liabilities

4. Total investment Turnover Ratio:

This ratio is calculated by dividing the net sales by the value of total assets that is (Net
sales / Total Investment) or (sales / Total Investment.) A high ratio is an indicator of over
trading of total assets while a low ratio reveals idle capacity. The traditional standard for the
ratio is two time

5. Fixed Assets Turnover Ratio.

This ratio expresses the number of times fixed assets are being turned-over is a state
period. It is calculated as under.

Sales
 -------------------------------------------------------

Net fixed Assets (After depreciation)

This ratio shows low well the fixed assets are being uses in the business. The ratio is
important in case of manufacturing concern because sales are produced not only by use of
Current Assets but also by amount invested in Fixed Assets the higher ratio, the better is the
performance. On the other hand a low ratio indicated that fixed assets are not being
efficiently utilized.

6. Gross capital Employed:

The term “Gross Capital Employed” usually comprises the total assets, fixed as well
as current assets used in a business.

Gross Capital Employed = fixed Assets + Current Assets.

7. Return on Fixed Assets:

Profit after Tax

--------------------- X 100

Fixed assets

This ratio is calculated to measure the profit after tax against the amount invested in
total assets to ascertain whether assets are being utilized properly or not. The higher the ratio
the better it is for the concern.

ANALYSIS THE FIXED ASSETS TURNOVER AT LG ELECTRONICS

 Fixed assets are the asset which cannot be liquidates into cash within one year. The
large amount of the company is invested in these assets. Every year the company investment
a additional fund in these assets directly or indirectly the survival and other objectives of the
company purely depends on operating performance of management in effective utilization of
their assets.

Firm has evaluate the performance of fixed assets with proportion of capital employee
on net assets turnover and other parameters which is helpful for evaluating the performance
of fixed assets.

The project is covered of fixed Assets of LG ELECTRONICS. drawn form annual

report of the company. The fixed assets considered in the project is which cam not be
converted into cash with one year. Ratio analysis is used for evaluating fixed assets
performance of LG ELECTRONICS.

The subject matter is limited to fixed assets it analysis and its performance but not any
other areas of accounting, corporate marketing and financial matters.

What is the 'Fixed-Asset Turnover Ratio'

The fixed-asset turnover ratio is, in general, used by analysts to measure operating
performance. It is a ratio of net sales to fixed assets. This ratio specifically measures how able
a company is to generate net sales from fixed-asset investments, namely property, plant and
equipment (PP&E), net of depreciation. In a general sense, a higher fixed-asset turnover ratio
indicates that a company has more effectively utilized investment in fixed assets to generate
revenue.

The fixed-asset turnover ratio is calculated as:

Fixed assets turnover= Net sales

Net Property, Plan and Equipment

BREAKING DOWN 'FIXED-ASSET TURNOVER RATIO'

The fixed-asset turnover ratio is commonly used as a metric in manufacturing

industries that make substantial purchases for PP&E in order to drive up output. When a
company makes such significant purchases, wise investors closely monitor this ratio in
subsequent years, to observe the effectiveness of such an investment in fixed assets.

In general, investments in fixed assets are representative of the sole, largest component
of the company’s total assets. The ratio, calculated on an annual basis, is constructed in a way
that is purposeful in reflecting how efficiently a company, primarily the company’s
management team, has used these substantial assets to generate revenue for the firm.

Indications of the Fixed-Asset Turnover Ratio

While a higher ratio is indicative of greater efficiency in managing fixed-asset

investments, there is not an exact number or range that dictates whether a company has been
efficient at generating revenue from such investments. For this reason, it is important for
analysts and investors to compare a company’s most recent ratio to both the historic ratios of
the company and to ratio values from peer companies and/or industry averages.

Though the fixed-asset turnover ratio is of significant importance in certain industries,

an investor or analyst must determine whether the specific company is the right type for the
ratio being used, before attaching any weight to it. Fixed assets vary drastically from one
company to the next. As an example, consider the difference between an Internet company
and a manufacturing company has a significantly smaller fixed-asset base than a
manufacturing giant such as Caterpillar. Variations on the Ratio

Some asset-turnover ratios utilize total assets in the equation instead of fixed assets.
However, the latter acts as a representative of a multiplicity of a firm’s management’s
decisions on capital expenditures, because it is such a significant element in the
firm’s balance sheet. A fixed-asset investment is a capital investment, but more importantly,
the results of the capital investment are a greater indicator of performance, more so than that
evidenced by total asset turnover.
 MANAGEMENT OF FIXED ASSETS

The selection of various fixed asset required creating the desired Production facilities and the
decision regards the extermination of the level of Fixed assets is primarily the task that at the
production technical people. The decision relating to fixed assets involves huge funds a long
period of time and are generally irreversible nature affecting the long term profitability of
a concern, an unsound invest decision may prove to b total to the very existence of the
organization. Thus, the management of fixed asset is of vital importance to any organization.

The process of fixed asset management involves:

(i) Selection of most worthy projects or alternative of fixed assets,

(ii) Arranging the requisite funds / capital for the same

The first importance consideration to be acquire only that much amount of fixed
assets which will be just sufficient to ensure and efficient running of the business. In some
cases it may be economical to by certain asset in a lot size. Another important consideration
to be kept in mind is possible increase in demand of the firm’s product necessarily
expansion of its activities. Hence a firm should have that much amount of fixed
assets, which could adjust to increase demand.

The third of fixed assets management is that a firm must ensure buffer stocks of certain
essential equipment / services to ensure uninterrupted production in this events of
emergencies. Sometime, there may be a breakdown in some equipment or services affecting
the entire production. It is always better to have some alternative arrangements to deal with
such situations. But at the same time the cost of carrying such buffer stock should also be
evaluated. Efforts should also be made to minimize the level of buffer stock of fixed assets
be encouraging their maximum utilization during learn period, transferring a part of peak
period and living additional capacity.

The process of Fixed Assets Management involves:

1. Selection of most worthy projects from the different alternatives of fixed assets.

2. Arranging the requisite funds/capital for the same.

 The first important consideration is to acquire only that amount of fixed assets, which will
be just sufficient to ensure smooth and efficient running of the business. In some cases it may
be economical to buy certain assets in a lot size. Another important consideration to be kept
in mind is possible increase in the demand of the firm’s product needs the expansion of
activities. Hence a firm should have that amount of fixed assets, which could adjust to
increase demand.

Another aspect of fixed assets management is that a firm must ensure buffer stocks of
certain essential equipments to ensure uninterrupted production in the events of emergencies.
Sometimes, there may some breakdown in some equipments or services affecting the entire
production. It is always better to have some alternative arrangements to deal with such
situations but at the same time the cost of carrying such buffer stock should also be evaluated.
Efforts should also be made to minimize the level of buffer stock of fixed assets so that there
will be maximum utilization during that period.

Fixed assets management is an accounting process that seeks to track Fixed assets for
the purposes of financial accounting, preventive Maintenance, and theft deterrence. Many
organizations face a significant challenge to track the location, quantity, condition,
maintenance and depreciation status of their fixed assets.

A popular approach to tracking fixed assets utilizes serial numbered Asset Tags, often
with bar codes for easy and accurate reading. Periodically, the owner of the assets can take
inventory with a mobile barcode reader and then produce a report .Off-the-shelf software
packages for fixed asset management are marketed to businesses small and large. Some
Enterprise Resource Planning systems are available with fixed assets modules.

Investment management : It is the professional management of various securities (shares,

bonds etc) and other assets (e.g. real estate), to meet specified investment goals for the benefit
of the investors. Investors may be institutions (insurance companies, pension funds,
corporations etc.) or private investors (both directly via investment contracts and more
commonly via collective investment schemes eg. mutual funds).

The term asset management is often used to refer to the investment management of collective
investments, whilst the more generic fund management may refer to all forms of institutional
investment as well as investment management for private investors. Investment managers
who specialize in advisory or discretionary management on behalf of (normally wealthy)
private investors may often refer to their services as wealth management or portfolio
management often within the context of so-called "private banking".

The provision of 'investment management services' includes elements of financial analysis,

asset selection, stock selection, plan implementation and ongoing monitoring of investments.

Investment management is a large and important global industry in its own right responsible
for caretaking of trillions of dollars, euros, pounds and yen. Coming under the remit of
financial services many of the world's largest companies are at least in part investment
managers and employ millions of staff and create billions in revenue.

Fund manager : It refers to both a firm that provides investment management services and an
individual(s) who directs 'fund management' decisions

Fixed asset : It also known as property, plant, and equipment (PP&E), is a term used in
accountancy for assets and property which cannot easily be converted into cash. This can be
compared with current assets such as cash or bank accounts, which are described as liquid
assets. In most cases, only tangible assets are referred to as fixed.

Fixed assets normally include items such as land and buildings, motor vehicles, furniture,
office equipment, computers, fixtures and fittings, and plant and machinery. These often
receive favorable tax treatment (depreciation allowance) over short-term assets because they
depreciate over time.

Assets Characteristics:

Assets have three essential characteristics:

 They embody a future benefit that involves a capacity, singly or in combination with
other assets, in the case of profit oriented enterprises, to contribute directly or
indirectly to future net cash flows, and, in the case of not-for-profit organizations, to
provide services;

 The entity can control access to the benefit; and, The transaction or event giving rise
to the entity's right to, or control of, the benefit has already occurred.
 TO ANALYSIS THE TECHNIQUES INVOLVED IN CALCULATION OF
DEPRECIATION AT LG ELECTRONICS

Straight-Line Depreciation

This method uses the estimated salvage value (scrap value) of an asset at the end of its
life and then subtracts that value from its original cost. The difference is equal to the value
that is lost during the asset's productive use. Once figured, this number is divided by the
management's best-guess estimate of the number of years that the asset will be useful.

Declining Balance Depreciation

Declining balance, a type of accelerated depreciation, is a method used to write off

depreciation costs more quickly and minimize tax exposure. The most common form of
declining balance is the double-declining balance, which is calculated by multiplying the
straight-line rate by 2.

Usually, the declining balance method applies a higher depreciation charge to the first year of
an asset's life and then gradually decreases depreciation expenses for future years.

Sum-of-the-Years' Digits Depreciation

The sum-of-the-years' digits method offers as depreciation rate that accelerates more
than the straight-line method but less than the declining balance method. Annual depreciation
is separated into fractions using the number of years of the asset's useful life.

Units of Production Depreciation

Units of production assigns an equal expense rate to each unit produced, which makes
it most useful for assembly or production lines. The formula involves using historical
costs and estimated salvage values and then determining the expense for the accounting
period, multiplied by the number of units produced.

Depreciation Calculation Methods

Various depreciation calculation methods are mentioned below:

i. Base Method
 ii. Declining Balance Method

iii. Maximum Amount Method

iv. Multi Level Method

v. Period Control Method

Base Method

Base Method- SPRO> IMG> Financial Accounting (New)> Asset

Accounting>Depreciation> Valuation Methods> Depreciation Key> Calculation
Methods>Define Base Methods

Base method primarily specifies:

 The Type of depreciation (Ordinary/ Special Depreciation)

 Depreciation Method used (Straight Line/ Written Down value

Method)
 Treatment of the depreciation at the end of Planned useful life
of asset or when the Net Book value of asset is zero (Explained in detail later in other
related transactions )

Straight Line Method (SLM)

 This is the simple method of depreciation.

 It charges equal amount of depreciation each year over useful

life of asset.
 It first add up all the costs incurred to bring the asset in use and
then it divides that by the useful life of asset in years to calculate the depreciation
expense.

Written Down Value Method (WDV)

  This method involves applying the depreciation rate on the Net Book Value
(NBV) of asset. In this method, depreciation of the asset is done at a constant
rate.

 In this method depreciation charges reduces each successive period.

 This method should be used in those assets, where high depreciation should be
charged in initial years.
 Assume the price of a depreciable asset i.e. computer is Rs. 40,000 and its
salvage value after 10 years is 0.
 In this method NBV will never be zero.

Declining Balance Method

 Enter Transaction code AFAMD- Change View “Declining Balance Method”

 AFAMD- Change View “Declining Balance Method”- SPRO> IMG> Financial
Accounting (New)> Asset Accounting>Depreciation> Valuation Methods>
Depreciation Key> Calculation Methods> Define Declining-Balance Methods
 This is the other name of Written Down Value (WDV) method as mentioned in Base
method above.
 If the WDV method is specified in Base method then the following additional settings
in this method can be used:
 A multiplication factor for determining the depreciation percentage rate. The system
multiplies the depreciation percentage rate resulting from the total useful life by this
factor.
 A lower limit for the rate of depreciation. If a lower depreciation percentage rate is
produced from the useful life, multiplication factor or number of units to be
depreciated, then the system uses the minimum percentage rate specified here.
 An upper limit for the rate of depreciation.If a higher depreciation percentage rate is
produced from the useful life, multiplication factor or number of units to be
depreciated, then the system uses the maximum percentage rate specified here.

Maximum Amount Method

Maximum Amount Method- SPRO> IMG> Financial Accounting (New)> Asset

Accounting>Depreciation> Valuation Methods> Depreciation Key> Calculation Methods>
Define Maximum Amount Method
 Generally, If we uses Straight line method, then depreciation amount should be same
for all years. But depreciation on asset is subject to change due to many factors e.g. any
addition to the asset, change in estimate of useful life, change in estimate of scrap value etc.

So for maintaining better control on the amount of depreciation, SAP has provided this
method where we can specify the maximum amount that can be charged as expense in a
particular year. If this is specified, user will not be able to post depreciation exceeding the
amount specified here.

Multi Level Method

Enter Transaction code AFAMS- Change View “Multilevel Method”

AFAMS- Change View “Multi Level Method”- SPRO> IMG> Financial

Accounting (New)> Asset Accounting>Depreciation> Valuation Methods>
Depreciation Key> Calculation Methods> Define Multi Level Methods

As the name itself suggests, this method provides the flexibility to specify
different rate of depreciation for different years/periods. E.g. in some cases
depreciation rate required is different in initial years and after that the rate should
be changed. This can be achieved in SAP by using Multi level Method.

In this method, SAP provides us the possibility to specify different levels during
the useful life of an asset. Each level represents the period of validity of a certain
percentage rate of depreciation. This percentage rate is then replaced by the next
percentage rate when its period of validity has expired. We can specify the validity
period for the individual levels of a asset in years and months.

It also provides the flexibility to us to choose the defined validity period, which
can begins with

 The capitalization date.

 The start date for ordinary or tax depreciation.
 The original acquisition date of the asset under construction.
 The changeover year.

v. Period Control method

 Enter Transaction code AFAMP- Maintain Period Control Method

AFAMP- Maintain Period Control Methods”- SPRO> IMG> Financial Accounting

(New)> Asset Accounting>Depreciation> Valuation Methods> Depreciation Key>
Calculation Methods> Maintain Period Control Methods

It is one of the most relevant method to keep control on the calculation of

depreciation. Here we mention the different rules for periods in case of different scenarios for
assets. This method controls the period for which the depreciation is calculated on an asset
during the year.

Under this method, we can specify the period for which the depreciation should be
calculated in case of :

 Acquisition of Asset/Subsequent acquisition

 Retirements/Scrap
 Sales/Transfers
 Upward/Downward Revaluation

There are some standard methods that has been provided by SAP e.g. Pro rata at

mid period, Pro rata at period start date, at the start of year or At mid year etc. E.g., If client
requires to depreciate an asset from the First day of the year in which the asset is capitalised,
we can use the method `At the start of the Year` in case of Acquisition.

This method has been explained with the help of one comprehensive example below:

1. In case of Asset Acquisition: Depreciation should start from the First day of the year
in which asset is acquired.

2. In case of Asset Addition: Depreciation should start from the Ist day of period of
date of addition.

3. In case of Asset retirement: Depreciation should be charged upto Mid period

regardless of date of retirement.

4. In case of Asset Transfer: Depreciation for the full year should be charged by the
transferee company.
 After having knowledge of all the depreciation calculation methods, we can assign the
depreciation calculation methods to the depreciation key.

Creation of Depreciation key:

 Asset accounting module of SAP calculates the depreciation on Assets based on the
configuration done for Depreciation key. Depreciation Key basically contains the
calculation methods which in combination control the following:

 Period for which Depreciation is charged

 Method of Depreciation
 Scrap value, if any
 Planned change in Method of Depreciation

We enter a separate depreciation key for each depreciation area in the asset master record.

Creating Depreciation Key:

Here, we need to specify the following at appropriate fields\check boxes:

 No./Name of Depreciation key Numeric/Alphanumeric.

 Maximum Amount method (Discussed above in methods of depreciation)

 Cutoff value key to control the scrap value if no absolute scrap value is
maintained in the system. The cutoff percentage rate that is determined on the
basis of this cutoff value key is only used by the system when:
 There is no absolute scrap value entered in the the depreciation areas of the
asset concerned (an absolute scrap value takes precedence over a cutoff
percentage rate)
 Negative book value is not allowed for the asset
 Whether ordinary depreciation should continue to be charged in a year in
which special depriciation is also charged on the asset or not?
 Set `Depreciation to the day` indicator to allow system to calculate the
depreciation according to the number of days the asset is used.

If this indicator is set, period control method assigned to depreciation key will be ignored and
Asset value date will be considered as the depreciation start date.
Assignment of Depreciation Calculation Method to Depreciation key:

Select The depreciation key and click on Assignment of Calculation methods. Now
assign different methods to depreciation key.
ANALYSIS THE PROPORTION OF FIXED ASSETS AMOUNT CONTRIBUTED
PAYMENT OF LONG TERM LIABILITIES AT LG ELECTRONICS

Contributed capital is an element of the total amount of equity recorded by an

organization. It can be a separate account within the stockholders' equity section of
the balance sheet , or it can be split between an additional paid-in capital account and
a common stock account (where the par value of the shares sold is recorded in the
common stock account and any excess payments are recorded in the additional paid in
capital account), which are also within the stockholders' equity section of the balance
sheet.

It is customary for investors to concentrate their attention on the net amount of

total equity, rather than this single element of equity. Thus, the recordation of
contributed capital is designed to fulfill a legal or accounting requirement, rather than
providing additional useful information.

When an investor pays a company for shares of its stock, the typical journal
entry is for the company to debit the cash account for the amount of cash received and
to credit the contributed capital account. There are other possible transactions involving
increases in contributed capital, of which the following are the most common:

 Receive cash for stock. Debit the cash account and credit the contributed capital
account.
 Receive fixed assets for stock. Debit the relevant fixed asset account and credit the
contributed capital account.
 Reduce a liability for stock. Debit the relevant liability account and credit the
contributed capital account.

The term contributed capital only refers to shares that investors have bought
directly from the company, either from an initial public offering or a secondary issuance
of stock; there is no accounting entry for shares that are exchanged between investors
on the open market, since the company receives no cash from these transactions.
 Despite the name, contributed capital does not refer in any way to funds
contributed to a nonprofit entity. A nonprofit has no stockholders' equity, so there is no
way to acquire an equity position in such an organization.

'Contributed Capital'

Contributed capital is an entry on the shareholders' equity section of a

company's balance sheet that summarizes the total value of stock that shareholders have
directly purchased from the issuing company. Contributed capital is calculated by adding
the par value of the shares to the value paid that was greater than par value. Shares that
investors purchased from the secondary markets are not incorporated into the contributed
capital, but shares sold as a result of a secondary offering would count, as the proceeds of
these shares go directly to the issuing company.

Breaking down 'contributed capital'

Nonprofits rely on contributions from donors, and companies rely on capital

investment from investors. While it may sound like "contributed capital" refers to a
contribution or donation to a nonprofit, it actually refers to the cash investors give companies
in exchange for stock or equity.

Contributed Capital Calculation

There are two ways for investors to invest in a company: through debt or through
equity. Debt is recorded on the company's balance sheet under liabilities. Equity is also
recorded on the balance sheet, but equity is recorded in a section referred to as stockholders'
equity – and contributed capital is a part of this section.

When an investor buys a stock, the company records a debit to the cash account for
the amount of cash received in the transaction. The account that is credited with this cash is
contributed capital, also referred to as paid-in capital on the balance sheet.

The formula for contributed capital is par value plus additional paid-in capital. In
other words, contributed capital includes the par value of the stock and the additional amount
paid over par value, referred to as paid-in capital.
Contributed Capital Considerations

This is not the only transaction that finds its way into the contributed capital account.
The contributed capital account is also credited with cash from the receipt of fixed assets in
exchange for stock or the reduction of a debt in exchange for stock. In other words, if the
company pays for assets and eliminates debt in exchange for stock, it is recorded in this line
item.

The only caveat is that the shares must be purchased directly from the company in the
form of an initial public offering (IPO) or a secondary IPO. The company does not receive
cash when shares of its stock are traded on the exchange. The value of these shares goes up in
value, but that increase in market value is not recorded to cash. Contributed capital can also
include preferred stock.

The Components of Long-Term Debt

A company’s long-term debt, or liability, consists of items it expects to take longer

than a year to pay off. Long-term liabilities differ from current liabilities, which a company
expects to pay back within one year. Several different components make up your small
business’s long-term debt. Some of these components make up the long-term liabilities
section of your balance sheet, while some remain off the balance sheet.

Loans and Notes

A loan, or note, represents money a business owes to a lender, such as a bank. A

company might make periodic interest payments and repay the principal balance on a specific
future date, or it might pay down the balance gradually with each payment. For example, a
small business might have a $20,000, five-year loan that it pays down gradually with each
payment. A business reports loans or notes as “loans payable” or “notes payable” on the
balance sheet.

Bonds

A bond is an instrument a company sells to investors to raise money. A company might sell
multiple bonds at one time, with each bond carrying a certain denomination, such as $1,000.
A company promises to make periodic interest payments and to repay the face value of a
bond on a specific future date.
For example, your small business might issue 10, $1,000 bonds to raise $10,000. A business
reports its outstanding bonds as “bonds payable” on its balance sheet.

Capital Leases

A lease represents an agreement to use an asset, such as a machine, in exchange for making
payments to the party who owns the asset. A capital lease is one in which the characteristics
of the agreement are similar to a purchase. A company treats a capital lease as if it purchased
the leased asset and reports the lease as a long-term liability on the balance sheet.

Deferred Taxes

The amount of deferred taxes a company reports on its balance sheet represents the money it
owes for future income taxes. Deferred taxes occur when a company uses different methods
to calculate income taxes than it uses to figure taxes on its income statement. For example,
your small business might use a different depreciation method on your financial statements
than on your income taxes, which might create a future tax liability.

Off-Balance-Sheet Items

There are some components of a company’s long-term debt that it is not required to report
directly on the balance sheet, but that it typically reports in the footnotes to the balance sheet.
Examples of these off-balance-sheet items include certain contractual agreements and
operating leases, which are agreements to lease assets that you do not intend to own.
Although these items are absent from the balance sheet, they still contribute to your overall
long-term debt.

LIABILITIES

In business, a liability is a legally binding claim on the assets of a business firm or

individual. In this sense, Liability is essentially an accounting term for debt.

Businesses firms carry liabilities on the Balance sheet under two major headings.
Firstly, Balance sheet debt appears under Current liabilities (or Short term liabilities).
These debts may include Notes payable in 90 days, or Accrued wages—payment owed but
not yet paid to employees. Secondly, Balance sheet debt also appears under Long term
liabilities (or Non-current liabilities) such as 5-year, 10-year, or longer term notes
or bonds sold to the public.

A company's total liabilities are the sum of its short and long term liabilities. In brief,
liabilities represent the totality of a company's outstanding debt.

Liabilities Role on the Balance Sheet

All of the firm's Liabilities accounts and their balances are taken together as one term in the
so-called Accounting Equation.

Assets = Liabilities + Owners equities

The equation also carries the name Balance Sheet Equation because its three terms—
Assets, Liabilities, and Owner’s equities—are the three top level sections of the Balance
sheet. Exhibit 1, below, is a simple Balance sheet example showing how these terms provide
structure for the statement.

The Balance Sheet deserves its name, moreover, because the balance between left and
right sides of the equation always holds. Double-entry accounting ensures that both sides of
the equation are always equal. Increases or decreases to one side of the equation always pair
with equal compensating increases or decreases on the other.

In a nutshell, the equation says that the company has certain assets to work with, and that
these come from two kinds of sources

1. Liabilities (borrowing, or other debt)

2. Owners Equity, including Retained earnings and Contributed capital from issue of
stock.

3. Calculation

4. Long-Term Debt is the debt due more than 12 months in the future. The debt can be
owed to banks or bondholders. Some companies issue bonds to investors and pay
interest on the bonds.
5. Long-Term Capital Lease Obligation represents the total liability for long-term leases
lasting over one year. It's amount equal to the present value (the principal) at the
beginning of the lease term less lease payments during the lease term.

6. The interest paid on companies' debt is reflected in the income statement as interest
expense. If a company has too much debt and it cannot serve the interest payment on
the debt or repay the matured debt, the company risks bankruptcy. Peter Lynch
famously said: A company that does not have debt cannot go bankrupt.

7. A company's long term debt may have different dates of maturity and interest rates,
depending on the terms.

8. Usually a company issues long term debt to pay for its capital expenditures.
Borrowing allows the company to do things that otherwise cannot be done with only
the capital it has. But debt can be risky.
 FINDINGS

 According to the trend analysis it can be observed that the growth rate of total
investment of LG Electronics industries is in down ward trend.

 The average growth rate in fixed assets Rs. 5,92,90,306 in five years.

 The gross fixed to net worth ratio is fluctuating from year to year in the year
2016-17 the gross fixed assets to net worth ratio is 166.59, in the year 2017-18
the fixed assets to net worth to acquire the ratio is 151.52.

 The fixed assets has percentage to current liabilities ratio was 2.96 in the year
2016-17 and is gradually changing to 2.47 in 2017-18

 The year 2016-17 the fixed asset turn over ratio was 2.21% and in the year
2017-18 the ratio was increased to 2.40%.
 CONCLUSION

After analyzing the financial position of LG ELECTRONICS industries and

evaluating its Fixed assets Management Techniques in respect of Components analysis. Trend
analysis and Ratio analysis. The following conclusions are drawn form the project
preparation.

The financial position of LG ELECTRONICS regarding investment it has been increased.

 Regarding the long term funds to fixed assets it is increased over the years.

 Regarding the fixed assets as a percentage of current liabilities it is observed it is

decreased.

 Regarding the total investment turnover ratio it is observed that it has been increased
over the years considerably i.e., 32.5 % to 50.43 %.

 Regarding the fixed assets turnover ratio it has been observed that it is satisfactory at
it were increasing from 108 %

 Regarding the fixed assets to total assets it been observed that there was decreased
form 31.5% to 46 % as a results it is said to be that the ratio is quite satisfactory.

 From the above study it can be said that the LG ELECTRONICS industries financial
position on fixed assets is quite satisfactory.
 SUGGESTIONS

 As LG is the manufacturer of electronics and consumer durables alloys in the country,

the most acceptable material for electronics devices world wide. It should put in more
efforts to capture a sizable market share of consumer durables.

 LG ELECTRONICS continues to be comfortable on the power front with the

availability of surplus power uninterruptedly from its feeder agencies. However, by
taking strategic decisions at appropriate time it could be able to transfer some of its
surplus power, reserved for its future expansion and modernization schemes,
temporary to another sister organizations in public sector, thereby avoiding payment
for unused power charges duly safe guarding is requirements to avail the same at
times it becomes necessary.

 The company has to maintain same status quo and increase the financial performance
and increase profit.

 The company can progress further by expanding to other areas.

 The company can claim concessions from Govt. of India.

 While several sectors like Defense and Aeronautics enjoy concessions of ‘NIL‘ duty,
power and software sectors from 5% to 20% no concessions are available to LG
ELECTRONICS in import of its raw materials. Government should take steps to
provide some relief in this regard.
 BIBLIOGRAPHY

Authors name Title of the Book, Publisher & Edition

L.M Pandcy : Financial management vikas publisher,

Prasanna Chandra : Financial Management, Tata McGrawhile

R.K Sharma : Management Accounting Kalyani Polishers.

S.P Jain & K.L Narang : Financial Accounting & Analysis Kalyani Publishers

WWW.LGELECTRONICS.COM

www.scribd.com

https://en.wikipedia.org/wiki/LG_Electronics

www.lg.com