Fx Asset Cntrol My

8/7/2019 Fx Asset Cntrol My

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Group Members



Fix ed Asset ManagementFix ed Asset Management& Control& Control

Dec 2010



Wh at is a f ix ed asset?Wh at is a f ix ed asset?

DE FINITION OF A FIX ED ASSE T

� A fixed asset is defined as a financial resource that meets all of thefollowing characteristics:

1. Tangible or intangible in nature, possesses physical

substance or a contract agreement outlining a defined scope; and2. Expected useful life of three (3) years or more.

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Ident if ic at ion of a f ix ed asset

� I n a large corporation, the task of identifying andlocating a specific fixed asset can be difficult unlessnumbering is scientific, systematic, and up-to-date. A common problem in most companies is the improper

maintenance of the F AR . Physical verification of fixedassets becomes a futile exercise unless the F AR isproperly maintained.



FIX ED ASSE T CLASS IFI CA TION S

1. . Land ± includes all land parcels acquired for municipal or

resale purposes1. Bu ild ings

± includes all buildings (or structures which serve asbuildings, such as permanently established trailers

1. Improvements O th er t h an Bu ild ings-includes improvements such as park facilities, parking

lots, baseball fields, tennis courts, swimming poolsand infrastructures associated with that company.



1. Ma c h inery and Equ ipment-includes all motor vehicles (licensed and non-licensed),

trailers, construction and maintenance equipment andfurniture and fixtures

Computer Pur c h ases- A ll computer purchases must comply with the computer

standards sheet



Wh at is t h e Useful L ife of a f ix ed asset?

� A n asset may be seen as having a physical life and an economiclife.

� M ost fixed assets suffer physical deterioration through usage andthe passage of time. A lthough care and maintenance may succeedin extending the physical life of an asset, typically it will, eventually,reach a condition where the benefits have been exhausted.

� H owever, a business may not wish to keep an asset until the end of its physical life. There may be a point when it becomesuneconomic to continue to use the asset even though there is stillsome physical life left.

The economic life of the asset will be determined by such factorsas 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.



Wh y s h ould f ix ed assets be managed?Wh y s h ould f ix ed assets be managed?

They have a life of over 12 months & hence are c arr ied forward toth e ne x t a cc ount ing per iod

They are open to m isuse, abuse, t h eft and fraud

They need to be retained in good work ingc ond it ionThey need repla c ement , that requires planning& finance

They are bought using proje c t funds & belong to the project

Fixed A ssets need to be h anded over to Government on projectclose

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They are usually of h ig h value



Wh at is a Fix ed Assets Reg ister ( F AR)?Wh at is a Fix ed Assets Reg ister ( F AR)?

It is a manual or c omputer iz ed re c ord of fixed assets

It contains deta ils of assets ± make, model, specifications, quantity, rate,value, supplier, receipts, issues, balance, location etc. It also has the dateof receipt of the asset & the payment voucher reference.

Ea c h c lass of assets will have a separate page in the F AR

Entry in F AR should be made before payment is released to the supplier

A ny alteration in the F AR must be duly aut h or iz ed

It will reflect the book balan c e of a c lass of assets at any point of time

Book balan c e is the balance of the asset/ class of assets as per the F AR

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Fixed AssetsRegister



Wh at is t h e Fix ed Assets Issue Reg ister ( F AIR)?Wh at is t h e Fix ed Assets Issue Reg ister ( F AIR)?

W hile the F AR is maintained according to class of assets, the F AIR is

ma inta ined a cc ord ing to t h e staff member w h o h olds t h e asset . There

will be one folio for each staff member who has custody of an asset

It will record the date of issue & return of ea c h asset

It will bear the s ignatures of t h e employee when he receives the asset &

that of the storekeeper the asset is returned

The register has to be per iod ic ally re c on ci led w ith th e F AR. A ll issues in

the F AR should be reflected in the F AIR

The register helps in lo c at ing assets at the time of physical inventory

taking

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Fixed Assets IssueRegister



Wh at are standard f ix ed asset c ontrolWh at are standard f ix ed asset c ontrolpro c edures?pro c edures?

Tagg ing & labell ing of assets ± assets are labelled or tagged so that theycan be easily identified & their ownership established

Insuran c e of assets against theft, fire, flood etc.- in most countries, onlyvehicles are insured. But it is a recommended practice to insure all projectassets. In some financing agreements, this is mandatory

P h ys ic al inventory of assets at regular intervalsLog books for ve h ic les , construction equipment, generators etc. The logbook records the details of use of the asset & is usually maintained by thedriver or operator. It helps in identifying personal use of project assets. It isalso used for calculating fuel consumption

Cross referen ci ng of f inan ci al & f ix ed asset re c ords ± done to avoidpayment to supplier before assets are recorded in the F AR . For internalcontrol purposes it is vital to re c on ci le t h e f inan ci al a cc ount ing re c ordsw ith f ix ed asset re c ords

Note: In some countries, it is the Government Policy to only insure vehicles12



Physical verification of fixed assetsPhysical verification of fixed assets

C onducted by an inter departmental team

S hould be undertaken under t h e superv is ion of e x ternal/ internalaud itors at least once a year

Surpr ise c h e c ks during audit/supervision visits

To verify e xi sten c e, c ond it ion & c ustody of assets

P h ys ic al balan c es c ompared with book balances

Var ian c es reported

Variances have to be adjusted in f inan ci al re c ords after dueauthorisation

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Fix ed Asset T ra c k ing Software

Enterprise A sset M anagement

F IX ED A SS ET S CS



P h ys ic al Asset Inventory F orm (PA IF )P h ys ic al Asset Inventory F orm (PA IF )

This is the form used for re c ord ing t h e results of

p h ys ic al asset ver if ic at ion

P AI F records the asset code, book balance, physical balance,

condition, var ian c e & poss ible reasons for var ian c e

Surplus & s h ortage are equally serious & need further

investigation

S hould be s igned by all members of the verification team

Preferably, it should be c ounter s igned by t h e aud itors

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PA I

orm



Reasons for revaluat ion

� I t is common to see companies revaluing their fixed assets. It isimportant to make the distinctions between a 'private' revaluation toa 'public' revaluation which is carried out in the financial reports.The purposes are varied:a) To show the true rate of return on capital employed .b) To conserve adequate funds in the business for replacement of fixed assets at the end of their useful lives. Provisionfor depreciation based on historic cost will show inflated profits andlead to payment of excessive dividends .c) To show the fair market value of assets which have considerablyappreciated since their purchase such as land and buildings.d) To negotiate fair price for the assets of the companybefore merger with or acquisition by another company.



. Only a portion of the firm's total funds (usually about20%) can be loaned or in the hands of anyone counterparty at any one time(Large ExposureR egulations).

k) To decrease the 'leverage ratio' (the ratio of debt toequity).



Met h ods of revaluat ion of f ix ed assets

I.Inde x at ion (1)

II.Current market pr ic e (CMP)

III .Appra isal Met h od



Important Po ints

The increase in value of fixed assets because of revaluation of fixed assets is credited to µ R evaluation R eserve ¶, and is notavailable for distribution as dividend. R evaluation R eserve istreated as a C apital R eserve.The increase in depreciation arising out of revaluation of fixedassets is debited to revaluation reserve and the normaldepreciation to Profit and Loss account.S election of the suitable method of revaluation is extremelyimportant.The most used method is the appraisal method. M ethods such as

indexation, and reference to current market prices are also used., when these methods are used they are crosschecked with thevalues arrived at by using the appraisal method.



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