Fixed assets can be created within the organization or purchased. The examples of fixed assets are equipment, machines, buildings, land. Also there are intangible assets, such as trademarks, copyrights, or goodwill that add value to your organization. An asset's useful life is the duration when it is used for your business. Generally, fixed assets are assets whose useful life exceeds one year.

As a fixed asset is in use, its value will decline through its useful life. 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 which is never depreciated. Some of the intangible assets are not depreciated because they may have unlimited useful life with their value not declining over time.

FirstBit ERP provides the functionality that allows you to account for the fixed assets from their purchase to disposal.

Setting up the functionality

To enable the Asset Management module and the fixed asset accounting functionality, select the Enable Fixed Asset Accounting option on the Administration > Configuration 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.

To be able to calculate depreciation of fixed assets, select the Enable Depreciation of Fixed Assets option.

If you are going to use the Preparation of Fixed Assets to Sale or Conservation of Fixed Assets documents and the corresponding functionality of fixed asset accounting, select the Enable Preparation of Fixed Assets to Sale and Enable Conservation of Fixed Assets options, respectively.

Accepting Fixed Assets to Accounting

Purchased inventory items which are intended for use as fixed assets are stocked at warehouses. The purchase and receiving is recorded with Invoice Received. If for the receiving warehouse the Separate Inventory and Financial Documents option is selected on the Administration > Settings > Purchasing and Warehouses form, you also need to create a Goods Receipt Note.

Before you accept the purchased or manufactured items as fixed assets to accounting, you can create master records for new fixed assets; for this open the Asset Management > Master Data > Fixed Assets form and click Create. Specify the ID, type, and class of the asset. For more information, refer to Adding a Fixed Asset.

At this stage, fixed assets are not matched to inventory items.

To add a new fixed asset to accounting, go to: Asset Management > Fixed Asset Documents> Fixed Asset Entries. In the process of creating a Fixed Asset Entry document, you match the inventory item or items to a fixed asset master record created earlier or created immediately.

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 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. 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.

Accounting for the fixed assets is performed in the accounting currency. The cost of the fixed asset may include the purchase prices of items and additional expenses. Notice, that if any item (included in a fixed asset) was purchased by using a foreign currency, conversion to the accounting currency was performed automatically using the exchange rates on the date of purchase. For each inventory item on the Inventory tab, you can manually enter the cost (in the accounting currency) in the Total Cost column and adjust the fixed asset cost on the Fixed Asset tab, so that it becomes equal to the sum of the item costs.

To start depreciation calculation, you must select one of the depreciation methods (Straight Line or Units of Production) and its parameters applicable to the fixed asset. Then select the Depreciate check box to start depreciation in the month next to the month when the fixed asset was accepted to accounting – this is the default option. If you choose to start depreciation in the same month in which the asset was accepted to accounting, select the Depreciate in the Current Month option.

Depreciating the Fixed Assets

The depreciation expense and accumulated depreciation amounts can be calculated automatically by the Month-End Closing process or manually.

To automatically calculate depreciation on closing the month end, you need to select the Calculate Depreciation option on the Accounting > Service Tools > Month-End Closing form and click the Execute button. The service tool will include calculation of the depreciation in its processing.

If you need to manually calculate depreciation for specific fixed assets, create a new document on the form: Asset Management > Fixed Asset Documents> Fixed Asset Depreciations. You can click the Calculate button to populate the list with all fixed assets under depreciation, then select the Manual Processing button and edit the list and adjust the depreciation amounts. Alternatively, you can select the Manual Processing check box and manually add the fixed assets of interest to the list. Then, the Month-End Closing service tool will not include the fixed assets listed with the Manual Processing option in its processing.

The depreciation calculation is not performed since the net book value of a fixed asset become equal to 0.

Using the Straight-Line Depreciation method

To use the Straight-Line depreciation method, you must specify the initial cost of the fixed asset and enter the number of months of useful life (how many months it must be depreciated).

Then, during each month-end closing process, the depreciation expense which is equal to Initial Cost/ Useful Life (Months) will be posted. The depreciation calculation is not performed for the fixed asset once its net book value becomes equal to 0.

Using the Units of Production Depreciation method

According to the Units of Production depreciation method, depreciation expenses are calculated proportionally to usage of the fixed asset which has a limited resource. Generally, this method is used when usage differs significantly from month to month.

For this depreciation method, you select the following parameters:

• UOM (unit of measure) in which usage will be measured.
• Usage Limit which sets up the maximum usage recommended for the fixed asset.

In a particular month, monthly depreciation expense is calculated as follows:

Month Usage * (Initial Cost/Usage Limit)

The Accumulated Depreciation amount is a sum of monthly depreciation amounts.

The net book value is calculated as follows:

Net Book Value = Initial Cost - Accumulated Depreciation 

You can use the Fixed Assets Output report to view the fixed asset usage over time.

Changing the accounting parameters for fixed assets

A fixed asset appears in the financial records at its net book value, which is its original cost minus accumulated depreciation. The net book value of a tangible fixed asset is always declining. However, under international financial reporting standards you can revalue a fixed asset, so that its net book value increases or decreases.

If you need to change the parameters of depreciation for a particular fixed asset, you can create a new Changes to Fixed Asset Accounting Parameters document. You can change any or all of the following parameters:

• Initial Cost
• Depreciation method
• GL accounts
• Business activity
• Expense item

New accounting parameters will be applied starting the month of the document date.

Placing fixed assets into conservation

To register the fixed assets placed into conservation, you can create Conservations of Fixed Assets documents with the Start of Conservation transaction type, that can be located as follows: Asset Management > Fixed Asset Documents > Conservations of Fixed Assets.

The fixed assets in conservation will appear on the balance sheet, however, the depreciation will not be calculated, and the net book value will not be changed during this time interval. The status of the fixed asset changes from Accepted to Accounting to In Conservation.

To indicate that the fixed asset is again in use, you can create a Conservation of Fixed Assets with the Conservation Cancellation document. The fixed asset, once conservation is cancelled, will be depreciated. The duration of useful life is not changed, however, it is just divided into an interval before conservation and the interval after cancellation of this conservation. The depreciation will be calculated as before conservation.

Note. A fixed asset in conservation can be written off or sold.

Selling the fixed assets

After some period of fixed asset usage, the organization may decide to sell the asset.

If you need to make specific preparations to fixed assets before you can sell them, you create a Preparation for Sale document which involves moving the fixed asset from the balance sheet, to a specific GL account.

Generally, sales of fixed assets are registered by creating the following documents: Asset Management > Fixed Assets > Fixed Asset Sales. For details, refer to Fixed Asset Sales. If you used Preparation for Sale, then you will be able to generate a Fixed Asset Sales document based on the Preparation to Sale document.

At the period of sales the asset's net book value is the difference between the initial cost and the accumulated depreciation.

Note. If the sale occurs before the end of the month, you can manually run the depreciation calculation for the current month by clicking the Calculate Depreciation button on the toolbar of the Fixed Asset Sales (create) form.

Any difference between the proceeds from sales and the fixes asset's net book value is recognized as either a gain or a loss.

Example
The organization purchased a machine with useful life of 5 years for $4000 on June 1, 2015. The machine was depreciated by using the linear depreciation method, each year by $800.

Then, the organization decided to sell the asset on June 2018 for $3000 in order to raise cash for the purchase of a new machine. At the moment of sale, the net book value of the machine is 1600.

The sale transaction generates the following journal entries:

Writing off the fixed assets

A fixed asset is written off when it is determined that there is no further use for the fully depreciated asset, or if the asset is disposed of without receiving any payment in return or damaged before it was fully depreciated. A write off involves removing the fixed asset from the balance sheet, that is, from GL accounts.

Write offs of fixed assets are registered by creating the following documents: Asset Management > Fixed Assets > Fixed Asset Write Offs.

A fixed asset write off involves reversing of both the recorded cost of the fixed asset and the corresponding amount of accumulated depreciation. Any remaining difference between the two is recognized as either a gain or a loss.

If the asset is fully depreciated, its write off debits all accumulated depreciation and credits the fixed asset GL Accounts.

Example

The organization purchased a woodworking machine with useful life of 4 years for $4800 on June 1, 2015. The machine was depreciated by using the linear depreciation method during 3 years and 6 months. Then, the machine was damaged beyond repair. The organization wrote off the machine. At the moment of write off, the net book value of the machine was 600.

The write off document generates the following journal entries:

Viewing the documents related to a fixed asset

To find all the documents related to a particular fixed asset, go to: Asset Management > Master Data > Fixed Assets, locate the fixed asset master record, open it, and click the Fixed Asset Documents link on the top. Then, you can view all the available documents related to this fixed asset. For more information, see Fixed Asset Documents.

Viewing fixed assets on reports

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 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 details of depreciation. You can filter the data by entity, status, department, specific fixed assets.
• Fixed Assets Output: 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 can filter the data by entity, department, and specific fixed assets.

For more information on details, refer to Accounting Reports.