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As a fixed asset is in use, its value will decline over time. Depreciation is the process of allocating an asset's cost over the course of its useful life. Notice that generally most of tangible assets are depreciated except for land that is never depreciated. Some of the intangible assets are not depreciated because they may have unlimited useful lives with their values not declining over time.
FirstBIT FirstBit ERP provides the functionality that allows you to account for the fixed assets from their purchase or construction to disposal.
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To enable the Asset Management module and the fixed asset accounting functionality, select the Enable Fixed Asset Accounting option on the Administration > Configuration Settings Settings > Asset Management form.
If you need to use non-current asset classes, select the Enable Non-Current Asset Classes option on the same form.
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Different documents are used to register different stages of fixed asset life cycle.
Brief description descriptions of handling different stages are contained in the sections below.
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Deployment of some assets may involve delivery, assembling of the items, and training of the personnel. These The costs of these services can be recorded using the Purchasing > Purchase Purchasing Documents > Additional CostsExpenses documents.
If it is planned that the asset will be constructed, you can manually change the New status of the fixed asset to Construction in Progress. Costs of any materials and construction works must be recorded to Construction in Progress GL account. Once the fixed asset is ready to use, you can manually change the status to Construction is Completed.
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To add a new fixed asset to accounting, go to: Asset Management > Fixed Asset Documents > Fixed Asset Entries. In this document, for the specified fixed fixed asset, you can list the inventory items that will be used as the fixed asset or specify only the construction costs if the fixed asset was constructed.
A fixed asset may be composed of multiple inventory items. You can create one fixed asset for specific quantity of the inventory item, or you can create a separate fixed asset for each unit of the specified quantity of the item. For example, a fixed asset Conference Room Chairs may include multiple chairs used in a conference room. Alternatively, you can consider each chair as a separate fixed asset. Also, you can associate multiple items of different types with a single fixed asset. For example, a warehouse fixture may include multiple racks and shelves purchased separately.
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Generally, depreciation is continuous and reflects expected wear and tear to fixed assets.
Reassessment
Periodically, business re-assesses their fixed assets for impairment. Over time, an asset's book value may become lower than the current market value (CMV) at which the asset could be sold, for instance due to unexpected damages. In some cases, the CMV of a specific asset may become higher than the book value. This means that its value on the balance sheet must be adjusted accordingly. In some countries, an organization cannot selectively apply revaluation to individual fixed assets. Instead, it must be applied to entire asset classes.
To register the results of reassessment, you can use the Changes of Fixed Asset Parameters document. Here, you can enter the revised Gross Cost, Salvage Value, and Useful Life.
Conservations
Fixed assets may need some preventive maintenance works to prevent damage or emergency repair over their useful lives. If the works require idle time measured in financial periods, you can initiate conservation of the fixed assets. Also, it may happen that you won't need to use specific assets some time for some reasons.
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To indicate that the fixed asset is again in use, you can create a Conservation of Fixed Assets document . with the Cancellation of Conservation transaction type. Posting of this document changes the status from In Conservation back to Active.
The fixed asset, once conservation is cancelled, will be depreciated. The duration of useful life is not changed, ; however, it is just divided into the interval before conservation and the interval after cancellation of this conservation. The depreciation calculation will be resumed. For more information, refer to Conservations of Fixed Assets.
Capital Improvements
If you decide to make capital improvements to a fixed asset, that is, to replace the significant parts with parts with higher efficiency characteristics or perform other essential works, necessity to place the asset in conservation may depend on how long the fixed asset will be out of use.
Generally, improvements could extend the useful life and increase the gross cost of the asset. You can record the costs of improvements using various documents - you only need to associate record these costs to the Capital Improvements GL account and associate them with particular fixed asset specified selected as costs cost object. Then, you can capitalize the costs of these improvements and register changes in other parameters by creating a Capital Improvements to Fixed Assets document. For details, refer to Capital Improvements to Fixed Assets.
Also, in this document you can calculate the current depreciation using the "old" parameters if needed. If the asset was in conservation during the capital improvement works, you will need to cancel the conservation once the works are completed. After that, you will be able to calculate depreciation with the revised parameters resulted from capital improvements made to the asset.
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If you need to make specific preparations before you can sell the fixed assets, you create a Preparation for Fixed Asset Sale document which involves moving the fixed asset from the balance sheet , to a specific GL account (by default, Held for Sale). On posting the document, the asset's status changes to Held for Sale, and depreciation is not calculated.
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Your organization must show both tangible and intangible assets on your balance sheet, with tangible assets listed first. For details, refer to Financial Statements.
For managing accounting of fixed assets, you can use the following reports in the Asset Management module:
- Inventory Card: Using this report, you can view the net book values of fixed assets with some Statement of Depreciation: The report lists the fixed assets grouped by department with the details of depreciation. You can filter the data by entity, status, department, and specific fixed assetsasset.
- Fixed Asset OutputBalances of Capital Improvements Costs: The report lists the fixed assets with the Units of Production depreciation method. For each such fixed asset, the output in the specified units of production during the selected period is shown.Statement of Depreciation: The report lists the fixed assets grouped by department with the details of depreciation. You shows the costs of capital improvements on the specified date listed by fixed asset and expense item. You can filter the data by entity, fixed asset, or expense item.
- Balances of Construction in Progress Costs: The report shows the costs of of fixed asset construction in progress on the specified date listed by fixed asset and expense item. You can filter the data by entity, fixed asset, or expense item.
- Costs of Capital Improvements to Fixed Assets: The report shows how the capital improvement costs changed during the specified period for the fixed assets. Expense items reflect the structure of costs. You can filter the data by entity, fixed asset, or expense item.
- Costs of Fixed Asset Construction in Progress: The report shows how these costs changed during the specified period for the fixed assets under construction. Expense items reflect the structure of costs. You can filter the data by entity, department, and specific fixed assetsfixed asset, or expense item.
For more information on details, refer to Asset Management: Reports.