| Asset Management |
| Asset Management is the process of accounting, recording, tracking, identifying, depreciating, maintaining and the timely disposal of non current assets within an organisation |
| Assets Register |
| An Asset Register (A.R.) is an accounting method used for major assets of an organisation. |
| Assets are assets include: land, machines, office equipments, buildings, patents, trademarks, copyrights, etc. held for the purpose of production of goods or rendering of services and are not held for the purpose of sale in the ordinary operation of business. |
| assets constitute a major chunk of the total assets in the case of all manufacturing entities. Even in the case of service entities such as hotels, banks, financial institutions, insurers, mobile / telephone service providers etc. it has become imperative to invest heavily in furnishing, equipment, and technology to attract, and retain customers. |
| Just as it is important for a person investing on the NASDAQ to know those investments, so it is important for a business entity to have a list of its assets. A Asset Register is that list of assets. |
| Reasons for maintaining an Asset Register (A.R.) |
| An A.R. must be kept in order to be in compliance with legislation governing corporations, companies, etc. It allows a company to keep track of details of each asset, ensuring control and preventing misappropriation of assets. It also keeps track of the correct value of assets, which allows for computation of depreciation and for tax and insurance purposes. The AR generates accurate, complete, and customized reports that suits the needs of management. |
| An A.R. also allows a company to keep track of assets that are not under simple, direct control of the company. This means owned and leased assets, assets under construction, and imported assets. |
| Making entries in the A.R. |
| Not all assets are capitalized. Keeping in view the concept of materiality, a company may have a policy to capitalize only those assets which cost more than a specified amount. In the US, government agencies are required to expense all equipment whose value is below a threshold limit. Similarly, assets which have a useful life of less than one year are not capitalized. |
| In some companies, improvements or alterations made to an asset are capitalized separately in the AR. This is not correct. If such mistakes are made, it is highly probable that the auditors while undertaking physical verification of assets will notice irreconcilable differences. Where improvements or alterations made to an existing asset justifying capitalization, such additions should be made to the cost of the original asset. |
| How A.R. should look |
| The format / details to be provided in An AR generally depends upon the following factors: |
| a) Nature of assets. |
| i. If moveable assets constitute a significant portion of total assets, details will be necessary on their movement from one department, cost centre or people to another. ii. Cost of assets. Greater control and security is required for costly equipment. |
| b) Customised Reports on assets required by management. |
| c) Disclosure norms / regulatory compliances as per statutory laws applicable to the entity. |
| d) Extent of owned, and assets taken on lease / hire purchase. |
| e) Requirements for insurance purposes |
| f) Location of assets. If assets are located at numerous locations, greater details will have to be given. In the case of a construction company, the assets are located at different work sites. These work sites maybe in different cities, countries, continents. |
| g) Maintenance costs. Some assets require regular servicing to keep them running in an efficient and satisfactory manner. It would be necessary to keep a tab on the maintenance costs, dates of servicing etc. during a stated period. |
| Maintenance of An A.R. in a Multi-National Corporation (M.N.C.) can be onerous and complex due to different regulatory and compliance requirements in each country and different currencies. |
| Generally, an M.N.C. sets up a subsidiary in the country in which it intends to start operations. Maintenance of AR is decentralized. The A.R. is maintained per the company’s policy, and regulatory requirements which are country specific. If consolidation of holding company and its subsidiaries (whether domestic or foreign) is required by the law applicable to companies, and relevant Accounting Standards, the task may become a bit complex. The crucial point is related to selection of exchange rate for conversion of assets. Most companies either use average annual rate or year-end exchange rate. |
| Identification of a asset |
| In a large corporation, the task of identifying and locating a specific asset can be difficult unless numbering is scientific, systematic, and up-to-date. A common problem in most companies is the improper maintenance of the AR. Physical verification of assets becomes a futile exercise unless the AR is properly maintained. |
| It would be advisable to use a scientific numbering technique to identify assets. The process of numbering assets is called tagging. An identification number (combination of alphabets, and numbers) is written on the asset. Engraving the identification number on the asset is advisable in the case of Plant and Machinery where there is heavy wear and tear. |
| A tag verifies the existence of assets and their location, aids in maintenance, provides a common ground for communication between the Accounts Department and the end-users and recording the net book value of asset in case of sale or scrapping. |
| It is not necessary to tag all assets. Land, buildings and vehicles all have independent systems of tracking in registration papers and survey numbers. |
| Asset |
| Non-current asset, 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 Intangible Assets in the balance sheet |
| Non Current 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. |
| The question above would not be best answered without giving consideration to the meaning of Asset. Assets are items of property, plant and equipment engaged by a business entity in the generation and expansion of revenue. According to International Accounting Standard (IAS) 16, Assets are assets whose future economic benefit is probable to flow into the entity, whose cost can be measured reliably. |
| It is pertinent to note that the cost of a asset is its purchase price, including import duties and other deductible trade discounts and rebates. In addition, cost attributable to bringing and installing the asset in its needed location and the initial estimate of dismantling and removing the item if they are eventually no longer needed on the location. |
| Depreciation is simply put to be the expense generated by the use of an asset. It is the wear and tear of an asset or diminution in the historical value owing to usage. Further to this; it is the cost of the asset less any salvage value over its estimated useful life. It is an expense because it is matched against the revenue generated through the use of the same asset. Depreciation is usually spread over the economic useful life of an asset because it is regarded as the cost of an asset absorbed over its useful life. Invariably the depreciation expense is charged against the revenue generated through the use of the asset. The method of depreciation to be adopted is best left for the management to decide in consideration to the peculiarity of the business, prevailing economic condition of the assets and existing accounting guideline and principles as implied in the organizational policies. |
| The primary objective of a business entity is to make profit and increase the wealth of its owners. In the attainment of this objective it is required that the management will exercise due care and diligence in applying the basic accounting concept of “Matching Concept”. Matching concept is simply matching the expenses of a period against the revenues of the same period. |
| The use of assets in the generation of revenue is usually more than a year- that is long term. It is therefore obligatory that in order to accurately determine the net income or profit for a period depreciation is charged on the total value of asset that contributed to the revenue for the period in consideration and charge against the same revenue of the same period. This is essential in the prudent reporting of the net revenue for the entity in the period. |
| Net book value of an asset is basically the difference between the historical cost of that asset and it associated depreciation. From the foregoing, it is apparent that in order to report a true and fair position of the financial jurisprudence of an entity it is relatable to record and report the value of assets at its net book value. Apart from the fact that it is enshrined in Standard Accounting Statement (SAS) 3 and IAS 16 that value of asset should be carry at the net book value, it is the best way of consciously presenting the value of assets to the owners of the business and potential investor. |
| Depreciation |
| The concept of depreciation is really pretty simple. For example, let’s say you purchase a truck for your business. The truck loses value the minute you drive it out of the dealership. The truck is considered an operational asset in running your business. Each year that you own the truck, it loses some value, until the truck finally stops running and has no value to the business. Measuring the loss in value of an asset is known as depreciation. |
| Depreciation is considered an expense and is listed in an income statement under expenses. In addition to vehicles that may be used in your business, you can depreciate office furniture, office equipment, any buildings you own, and machinery you use to manufacture products. |
| Land is not considered an expense, nor can it be depreciated. Land does not wear out like vehicles or equipment. |
| To find the annual depreciation cost for your assets, you need to know the initial cost of the assets. You also need to determine how many years you think the assets will retain some value for your business. In the case of the truck, it may only have a useful life of ten years before it wears out and loses all value. |
| Straight-line depreciation |
| Straight-line depreciation is considered to be the most common method of depreciating assets. To compute the amount of annual depreciation expense using the straight-line method requires two numbers: the initial cost of the asset and its estimated useful life. For example, you purchase a truck for $20,000 and expect it to have use in your business for ten years. Using the straight-line method for determining depreciation, you would divide the initial cost of the truck by its useful life. |
| The $20,000 becomes a depreciation expense that is reported on your income statement under operation expenses at the end of each year. |
| For tax purposes, some accountants prefer to use other methods of accelerating depreciation in order to record larger amounts of depreciation in the early years of the asset to reduce tax bills as soon as possible. |
| You need, additionally, to check the regulations published by the federal Internal Revenue Service and various state revenue authorities for any specific rules regarding depreciation and methods of calculating depreciation for various types of assets. |