A lot of people now use the phrase Fixed asset register without truly understanding what it is all about. So many things have been mistaken to be a fixed asset register. In this article, an attempt will be made to explain what an asset register is in a simple manner. It is however important to give a brief meaning of an asset.
What is an Asset?
An asset is any resource that is controlled by us, as a result of what we have done in the past, which economic benefit is expected to flow to us. Note the word “control”, we must not own an item before it becomes an fixed asset that we must record in our fixed asset register. For the purpose of this post, only tangible fixed assets needs to be recorded in the fixed assets register. This will make it easier for companies to get a view of her assets without necessarily preparing a statement of financial position (balance sheet).
WHAT IS A FIXED ASSET REGISTER?
A fixed asset register is a statement or list of assets owned (i.e. controlled) by a business showing details about the asset’s cost, current location, current working condition of asset, etc. This article will list the details that are mostly shown on an asset register and also give tips on how to prepare an asset register.
CONTENTS OF THE ASSET REGISTER
The following are what needs to be shown on the asset register of a business:
- COST: the cost of an asset should be clearly stated in the fixed asset register in such a way that one does not need to have problem identifying the cost of the asset. Cost of an asset includes both direct costs and incidental costs that would have been avoided if the asset hadn’t been bought. This cost is technically known as historical cost in accounting.
- DATE OF PURCHASE: this is essential for decision making and stewardship purposes. It is some company’s policy to replace their asset after certain length of time. Through a comprehensive fixed asset register, such information could easily be extracted without having to go through unnecessary complex process.
- SUPPLIERS NAME AND ADDRESS: A business is all about relationships, for this reason, the name, address and contact details of the supplier of an asset ought to be included in the asset register. This is important for continuity sake as well.
- SERIAL NUMBER: for security and regulatory reasons, companies and businesses should endeavour to include the serial number of an item purchased in the asset register. How can a company validate or confirm that a particular asset given to a staff has not been swapped for an inferior one if the company does not have a way of establishing the real identity of the asset?
- INTERNAL REFERENCE NUMBER: for internal monitoring and control, the internal references of an item should be included in the asset register.
- DEPRECIATION RATE AND METHOD: it is a good practice to include the depreciation rate and method that relates to an asset. Note that depreciation is NOT a way of setting aside certain amount of money for the replacement of an asset. It is simply a way of implementing the accrual concept of accounting which states that costs should be matched by the revenue which it brings.
- NOMINAL ACCOUNT NUMBERS: this is important as it improves the account preparation process.
- LOCATION OF THE ASSET: again, for monitoring purposes, track of an asset should be taken at all times. An asset should not be removed from the premise of a business without properly recording same in the asset register – the gate pass must of course be documented as well.
- DEPARTMENT(S) THAT USES THE ASSET: in an organization where there are certain forms of interdependencies that eventually lead to the use of transfer pricing, keeping good record of those that uses an asset will help management in allocating some central costs to some responsible centers. Having the details of the current location of a fixed asset also helps in accountability reporting ease of tracking.
- INSURANCE DETAILS: having the insurance detail of your asset incorporated into your asset register makes it easier to extract information about the asset when an insured event occurs.
- DATE OF DISPOSAL (IN SITUATIONS WHERE ASSETS ARE BEING DISPOSED): list of assets disposed should still be included in the asset register but clearly marked as disposed – this is where a lot of businesses get it wrong.
- GAINS /LOSSES ON DISPOSAL: any gain or loss made from the disposal of an asset should be clearly stated in the asset register.
How to prepare a fixed asset register
Now that we have a clear understanding of the contents of a fixed asset register, the next thing for us to focus on now is the process of building a reliable fixed asset register.
- Count assets: The first step in preparing a fixed asset register is to take complete inventory of all assets of a company. This process is often referred to as an asset verification process – be warned that this is not an easy task.
- Ownership: Establish ownership of all assets that have been physically counted. This is important as it is a requirement to highlight the ownership of an asset in the asset register.
- Status of Asset: Confirm that all the assets observed are in working condition. Take note of those assets that are no longer in working condition.
- Populate template: Once all the above are sorted out, the only thing remaining is to bring in all the contents that have been described earlier in this post.
All assets movements and changes in value should be recorded against individual assets. These include:
- Disposal (sale or scraping)
- Movement from one location to another
Check the physical evidence of an asset at all time against the register. This is an important internal control that should be in place in every organization irrespective of how simple its operations might seem. The minimum requirement of an internal control is that investments of a business should be protected so as to achieve the objectives of the business entity.
Control should be in place to confirm that in fact, purchased assets do exist, are or is in usable condition, have not been stolen, that register is up to date, etc.
For any form of document to be called a fixed asset register, it must contain all the accounting information listed in this article. Note that this article cannot give you all that you require to properly manage your asset; it is just an introductory guide. You may want to have a look at this other article on the importance of an asset register. Also check out my earlier post on tips on how to manage an asset.
I hope you will enjoyed reading this materials just like I enjoyed writing it!!