Accounting for non-current assets is a critical function for banking and finance professionals responsible for maintaining accurate financial records. In Kenya, adherence to prescribed accounting standards ensures that asset values are reported transparently and consistently, supporting sound decision-making and regulatory compliance. This chapter focuses on the accounting frameworks relevant to non-current assets and the methods used to allocate their cost over useful lives, with practical relevance to institutions such as banks, SACCOs, and county finance offices.

7.1 Accounting for assets as per accounting standards

Accounting standards set the rules for when a non-current asset is recorded, at what amount, how its cost is spread over its useful life, and what must be disclosed about it in the financial statements. Following the standards makes the non-current assets register and the statement of financial position reliable and comparable between entities and over time. Kenya once had its own national standards, the Kenya Accounting Standards (KAS); since 1999 Kenyan entities report under international standards: the International Accounting Standards (IAS) that remain in force and the International Financial Reporting Standards (IFRS) issued since 2001. Example: when a microfinance bank in Embu buys a branch building, it records the building and its fittings in the register following IAS 16, so that its annual report meets the requirements of ICPAK, the Central Bank of Kenya and its auditors.

7.1.1 Kenya Accounting Standards (KAS)

Kenya Accounting Standards were the national accounting standards issued by the Institute of Certified Public Accountants of Kenya (ICPAK), the body empowered by the Accountants Act to set accounting standards in Kenya. They were largely based on the international standards of the time, adapted to local conditions. They are no longer in use: ICPAK withdrew them and adopted the International Accounting Standards in full for financial periods beginning on or after 1 January 1999, and Kenyan entities now report under IFRS. Students still meet the name KAS in older financial statements, textbooks and records, so they need to know what it refers to.

Background to KAS

• Issuing body: ICPAK, through its professional standards committee, issued the standards from the 1980s.
• Basis: Most KAS were drawn from the International Accounting Standards, with local guidance added.
• Coverage of assets: They covered matters such as property, plant and equipment, depreciation accounting and accounting for leases.
• Users: Companies, banks, parastatals and other entities preparing financial statements in Kenya.

Replacement of KAS by international standards

• Adoption of IAS (1999): ICPAK adopted the International Accounting Standards for periods starting on or after 1 January 1999, so Kenyan financial statements became comparable with those of other countries.
• Move to IFRS: As the International Accounting Standards Board (IASB) replaced the old IAS series with IFRS from 2001, Kenya followed, and today listed companies, banks and other public interest entities report under full IFRS.
• IFRS for SMEs: Since 2009 ICPAK has allowed smaller private entities to use the IFRS for SMEs, a simplified version, in which Section 17 covers property, plant and equipment.
• Public sector: Government entities report under International Public Sector Accounting Standards (IPSAS), set in Kenya by the Public Sector Accounting Standards Board (PSASB).

Why the change matters for asset accounting

• Comparability: Investors and lenders can compare Kenyan entities with those in other countries.
• Access to finance: Banks and listed companies need internationally recognised financial statements to raise funds abroad.
• Regulatory requirement: The Capital Markets Authority, the Central Bank of Kenya and the Companies Act, 2015 expect financial statements prepared under IFRS.
• Consistent asset registers: Recognition, depreciation and disclosure of assets now follow the same rules as in IAS 16 worldwide.

7.1.2 International Accounting Standards (IAS)

International Accounting Standards are the standards issued by the International Accounting Standards Committee (IASC) between 1973 and 2001. When the IASB replaced the IASC in 2001, it adopted the existing IAS, and those not withdrawn remain in force as part of IFRS. Several of them govern non-current assets and are applied in Kenya today.

IAS 16 Property, Plant and Equipment

• Scope: Tangible assets held for use in production, supply of services, rental or administration and expected to be used for more than one period, such as land, buildings, vehicles, computers and furniture. Investment property and biological assets are excluded.
• Recognition: An item is recognised as an asset when it is probable that future economic benefits will flow to the entity and its cost can be measured reliably.
• Initial measurement at cost: Purchase price, import duties and non-refundable taxes, less trade discounts, plus directly attributable costs such as delivery, site preparation, installation and testing. For example, a hospital buying an X-ray machine includes installation and commissioning in its cost.
• Subsequent measurement: The entity chooses the cost model (cost less accumulated depreciation and impairment) or the revaluation model (fair value less later depreciation and impairment), applied to a whole class of assets. Many banks revalue land and buildings but keep equipment at cost.
• Depreciation: The depreciable amount (cost less residual value) is allocated systematically over the useful life; the method, useful life and residual value are reviewed at least each year end.
• Component accounting: Significant parts with different useful lives are depreciated separately, such as a building's structure over 50 years and its lifts over 15 years.
• Derecognition: On disposal, the gain or loss is the difference between the disposal proceeds and the carrying amount, recognised in profit or loss.
• Disclosure: Measurement bases, depreciation methods, useful lives or rates, gross carrying amounts, accumulated depreciation and a reconciliation of opening and closing balances for each class.

Other IAS that apply to non-current assets

• IAS 36 Impairment of Assets: An asset must not be carried above its recoverable amount (the higher of fair value less costs of disposal and value in use); any shortfall is an impairment loss.
• IAS 38 Intangible Assets: Covers assets without physical form, such as computer software and licences, which are amortised over their useful lives.
• IAS 40 Investment Property: Covers land and buildings held to earn rent or for capital growth rather than for use, measured by the cost or fair value model.
• IAS 23 Borrowing Costs: Interest on loans used to build a qualifying asset is added to its cost.
• IAS 20 Government Grants: Grants for assets are deducted from cost or shown as deferred income.

7.1.3 International Financial Reporting Standards (IFRS)

International Financial Reporting Standards are the standards issued by the International Accounting Standards Board (IASB) since 2001. The term IFRS is also used for the whole body of international standards, meaning the IFRS series together with the IAS still in force and their interpretations. Kenya has applied IFRS through ICPAK's adoption, and they are the standards Kenyan banks, insurers and listed companies use for their financial statements.

Features of IFRS

• Principles-based: IFRS set out principles and require judgement, rather than detailed rules for every case.
• Issued by the IASB: An independent board under the IFRS Foundation, with interpretations issued by the IFRS Interpretations Committee.
• Global use: More than 140 jurisdictions require or permit IFRS, making statements comparable across borders.
• Conceptual Framework: A common framework defines assets, liabilities, recognition and measurement for all standards.
• Full IFRS and IFRS for SMEs: Large and public interest entities use full IFRS; smaller entities may use the simplified IFRS for SMEs.

IFRS that affect non-current assets

• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: An asset to be sold within a year is classified as held for sale, measured at the lower of its carrying amount and fair value less costs to sell, and is no longer depreciated.
• IFRS 16 Leases: A lessee records a right-of-use asset and a lease liability for most leases, so leased branch premises and vehicles appear in the non-current assets register.
• IFRS 13 Fair Value Measurement: Sets how fair value is measured when assets are revalued.
• IFRS 1 First-time Adoption: Guides an entity moving to IFRS for the first time, as Kenyan entities did when leaving national standards.
• IFRS 9 Financial Instruments: Covers long-term financial assets such as investments in bonds and loans, which a bank also holds as non-current assets.

Applying IFRS to the non-current assets register

• Register fields: Each asset's description, tag number, location, cost, date of acquisition, useful life, residual value, depreciation method, accumulated depreciation and carrying amount.
• Classes of assets: Assets are grouped into classes (land, buildings, motor vehicles, computers, furniture) for measurement and disclosure.
• Annual reviews: Useful lives, residual values and impairment indicators are reviewed and the register updated.
• Reconciliation: The register total is agreed with the general ledger balances each period.

Chapter Summary

This chapter explored the accounting treatment and management of non-current assets, beginning with the relevant accounting standards that govern asset recognition and reporting, including the Kenya Accounting Standards and International Accounting Standards. It examined the primary methods of depreciation, focusing on the straight line and reducing balance techniques, explaining how each method allocates the asset’s cost over its useful life. The chapter then detailed the accounting treatment of depreciation in line with established accounting guidelines, highlighting the importance of adherence to accounting standards and underlying concepts such as consistency and prudence. Procedures for the acquisition of non-current assets were discussed, emphasizing proper recording and valuation at the time of purchase. The disposal process was also covered, outlining how to remove assets from the register and account for any gains or losses. Finally, the chapter addressed the methods for determining asset balances, ensuring accurate reflection of asset values on financial statements. Together, these topics provide a comprehensive framework for maintaining a non-current assets register in compliance with professional accounting principles.