Every business will have to deal with the challenges of maintaining and controlling their assets. For many this means trying to manage and control all of their current and fixed assets within complicated and sometimes error prone spreadsheets. For a small business with few assets, this can be easily managed but as a company grows and their asset portfolio becomes larger it can be become harder and harder to stay in control of your assets and their values.
It is important that businesses define the difference between their current and fixed assets as they will be calculated differently within their accounting system. For example, current assets are assets that form part of the circulating capital of a business. They can be replaced frequently or converted into cash during the course of trading such as stock, trade debtor and cash.
However a Fixed Asset is intended for continual use rather than short term and is not held for resale but for the production, supply, rental or administrative purposes. Unlike the name suggests a fixed asset doesn’t mean immovable. It is an asset which is not consumed or sold during the normal course of business, for example land, building, equipment, machinery and vehicles.
For example, when looking at a business who is selling cars the cars they are selling for resale are defined as current assets and must be accounted for as stock rather than fixed assets. The fixed assets of the business would be any trucks, vans or employee cars that they use for deliveries, breakdowns or employee use.
By accepting that the life of a fixed asset is limited, the accounts of a business needs to recognise the economic benefit of a fixed asset is derived in the long term, often over several years. For example, a piece of machinery which is used over a period of months will lose value. This type of consumption of a fixed asset is known as depreciation.
Defined as ‘the wearing out, using up or other reduction in the useful economic life of a tangible fixed asset whether arising from use, efflux ion of time or obsolescence through either changes in technology or demand for goods and services produced.’ For each fixed asset a portion of its value/benefit will be used up or consumed as times go by in order to generate revenue.
For a business with a large portfolio of fixed assets calculating the depreciation value of their assets in spreadsheets can be a time consuming and error prone task. Our Fixed Assets module helps to take away some of the complicated and time consuming processes associated with managing and controlling your fixed assets. Users are able to get complete visibility into their assets ensuring they are able to trace back all of their assets.
The module allows simple data entry, automatic depreciation calculations built into our period end routines and all of our reporting requirements managed from the one system. At the end of the useful life of a fixed asset the business will dispose of it and any amounts received from the disposal will represent its residual value.
To find out more download our flyer on fixed assets.