Most organizations need to deal with hundreds or even thousands of physical assets. In such a case, it’s important to know the operating condition and location of the assets owned by them at periodical intervals. Identifying, tracking, and controlling assets are a critical step in ‘Asset Maintenance’.
Tracking of available physical assets such as furniture and fixtures, plant and machinery, IT assets, etc. and compare with Fixed Asset Register. The process of tracking is performed by proper tagging of the assets using bar-code or such other human-readable numbers. To generate various reports and take corrective action
Once the asset is procured/ placed in service, the organization affixes asset tags with descriptive information such as asset number, expenditure code, asset description, cost center, and a bar code.
All entities conduct a physical count of all fixed assets at periodic intervals (ranging from 1 to 5 years) to verify actual assets in hand and value and ensure the accuracy of related financial records. PV of assets helps in identifying obsolete, abandoned and unused assets, control capital expenditure, obtain confirmation letters from the third parties, and support for corrective action on unmatched assets.
Reason for discrepancy identified
Organizations make efforts to make full utilization of fixed assets in their possession and control. Hence they must make efforts to identify and make available idle, excess, and underutilized equipment to other departments that may need them.
Impairment exists when the carrying amount of a fixed asset exceeds its fair value and is non-recoverable. Specific events/changes could trigger an impairment of an asset like a significant decrease in the market price of a fixed asset, a change in how the company uses an asset or changes in the business climate that could affect the asset’s value.
Adjustments to existing asset information are often needed to be made. Events may occur that can change the depreciable basis of an asset like there may be improvements or repairs made to assets that either add value to the asset or extend its economic life. Expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity.
The purpose of a revaluation is to bring into the books the fair market value of fixed assets. Events may occur that can lead the organization to revalue its assets for change in asset value due to inflation, deflation, or appreciation.