6.12 Fixed Assets

15 May 2009


Fixed Asset Register

One of the important roles of the directors of any organisation is ensuring that the assets of the organisation are protected. Basic good practice would require that as an absolute minimum an asset register be kept of all of the fixed assets of the NGB. The asset register is a record of all of the fixed assets of the NGB, their value and location. This information is important in keeping control of the assets, giving a valuation for the annual financial statements and recording matters such as depreciation.

An asset register can help keep track of:

  • The supplier of the asset
  • The estimated life of the asset
  • The method of depreciation and the rate that is applied
  • The original cost, annual depreciation and accumulated depreciation
  • Insurance details
  • Major repairs and maintenance
  • The method and proceeds of disposal or sale of the asset.


See Appendix 10 for an example of a Fixed Asset Register.

 

 

Capital Expenditure

The NGB should have a policy for capital expenditure to ensure that:

- Capital expenditure is properly planned, budgeted, approved and authorised.

- Purchases are correctly identified as capital expenditure.

  • A tangible fixed asset is an asset that has physical substance and is held for use in the production or supply of goods or services, for rental to others, or for administrative purposes on a continuing basis in the reporting entity's activities. In addition an asset in general is defined as "having rights or other access to future economic benefits controlled by an entity as a result of past transactions or events".

- All capital expenditure must adhere to NGB procurement policies.

  • All expenditure incurred by the NGB involving third party suppliers must be approved and authorised on a purchase order form in accordance with the procurement policies of the NGB.

- All fixed assets are depreciated and correctly valued.

  • Depreciation is defined as the measure of the cost or revalued amount of the economic benefits of the tangible fixed asset that have been consumed during the period. Consumption includes 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 the goods and services produced by the asset.
  • Fixed assets held for functional use that are considered to have a finite useful life should be depreciated at annual rates to spread their cost to the NGB evenly over their useful life in each case. Accounting for the depreciation of capital assets gives a more accurate picture of the expenses incurred in operating programs or services.
  • This depreciation should be included in the appropriate cost category as annual expenditure in the Income and Expenditure Statement, and will appear in the Balance Sheet as accumulated depreciation deducted from the value of the relevant fixed assets.
  • Where a fixed asset used for the functioning of the NGB has suffered unforeseen permanent diminution in value, the loss should be recognised immediately in the accounts by means of a "provision" charged to the appropriate expenditure heading.
  • There are several important points to note about depreciation:

- The charging of depreciation is a book entry and does not involve cash.

- The process of depreciation does not set aside cash to replace an asset at the end of its useful life.

- The depreciated value of an asset is not necessarily the same as its market value.

- Disposal of fixed assets are correctly stated and accounted for

  • An annual review for disposals within the fixed asset register should be carried out by the Treasurer and authorised by the CEO prior to completion of the capital budget.
  • The disposal proceeds received for an asset should be properly recorded as a sale of assets. The asset should be removed from the fixed asset register and the cost of the disposed asset should be posted to the sale of assets account. In addition the accumulated depreciation to the date of disposal of the disposed asset again should be posted to the sale of assets account. This method determines the profit or loss on the disposal of the asset.
  • The information relating to any fixed assets disposed for nil value or determined to be obsolete, this type of disposal must be authorised and approved before being recorded, documented and kept on a separate spreadsheet within the fixed asset register and reflected in the accounts by way of journal entry.

- A fixed asset register should be maintained and reconciled to the management accounts monthly

- Tangible assets are safeguarded and secure

  • Capitalised fixed assets are closely safeguarded and will remain on the main premises unless management approval has been authorised. In terms of physical security the fixed assets must be adequately protected on site and at least once a year a spot check/verification of fixed assets should be carried out. In addition there should be an alarm system or other security system in place.
  • All the assets listed on the balance sheet should be adequately insured by the NGB and reviewed annually by the Treasurer.
  • All data and computer software must be backed up daily and on a weekly basis secured offsite. A master copy should be maintained monthly for permanent record.