Fixed Assets Register

A Fixed Asset Register (FAR) is an accounting method used for major resources of a business.

Fixed Assets are assets such as land, machines, office equipments, buildings, patents, trademarks, copyrights, etc. held for the purpose of production of goods or rendering of services and are not held for the purpose of sale in the ordinary course of business.

Fixed assets constitute a major chunk of the total assets in the case of all manufacturing entities. Even in the case of service entities such as hotels, banks, financial institutions, insurers, mobile / telephone service providers etc. it has become imperative to invest heavily in furnishing, equipment, and technology to attract, and retain customers.

Just as it is important for a person investing on the NASDAQ to know those investments, so it is important for a business entity to have a list of its fixed assets. A Fixed Asset Register is that list of assets.

Objectives in maintaining a Fixed Asset Register (FAR)

A FAR must be kept in order to be in compliance with legislation governing corporations, companies, etc. It allows a company to keep track of details of each fixed asset, ensuring control and preventing misappropriation of assets. It also keeps track of the correct value of assets, which allows for computation of depreciation and for tax and insurance purposes. The FAR generates accurate, complete, and customized reports that suits the needs of management.

A FAR also allows a company to keep track of fixed assets that are not under simple, direct control of the company. This means owned and leased assets, assets under construction, and imported assets.

The FAR can also be used to aid in capital budgeting and to keep track of amount provided for Asset Retirement Obligation (ARO) in respect of each asset as required by US GAAP (FAS – 143).

Making entries in the FAR

Not all assets are capitalized. Keeping in view the concept of materiality, a company may have a policy to capitalize only those assets which cost more than a specified amount. In the US, government agencies are required to expense all equipment whose value is below a threshold limit. Similarly, fixed assets which have a useful life of less than one year are not capitalized.

In some companies, improvements or alterations made to an asset are capitalized separately in the FAR. This is not correct. If such mistakes are made, it is highly probable that the auditors while undertaking physical verification of assets will notice irreconcilable differences. Where improvements or alterations made to an existing asset justifying capitalization, such additions should be made to the cost of the original asset.

The format of FAR Entries

The format / details to be provided in a FAR generally depends upon the following factors:
*a) Nature of assets. i. If moveable assets constitute a significant portion of total fixed assets, details will be necessary on their movement from one department / cost center / people to another.ii. Cost of assets. Greater control and security is required for costly equipment.
*b) Customized Reports on fixed assets required by management.
*c) Disclosure norms / regulatory compliances as per statutory laws applicable to the entity.
*d) Extent of owned, and assets taken on lease / hire purchase.
*e) Requirements of insurance company.
*f) Location of fixed assets. If fixed assets are located at numerous locations, greater details will have to be given. In the case of a construction company, the assets are located at different work sites. These work sites maybe in different cities / countries / continents.
*g) Maintenance costs. Some fixed assets require regular servicing to keep them running in an efficient and satisfactory manner. It would be necessary to keep a tab on the maintenance costs, dates of servicing etc. during a stated period.

Maintenance of a FAR in a Multi-National Corporation (MNC) can be onerous and complex due to different regulatory and compliance requirements in each country and different currencies.

Generally, an MNC sets up a subsidiary in the country in which it intends to start operations. Maintenance of FAR is decentralized. The FAR is maintained per the company’s policy, and regulatory requirements which are country specific. If consolidation of holding company and its subsidiaries (whether domestic or foreign) is required by the law applicable to companies, and relevant Accounting Standards, the task may become a bit complex. The crucial point is related to selection of exchange rate for conversion of fixed assets. Most companies either use average annual rate or year-end exchange rate.

Similarly, for companies having their shares listed on American Stock Exchanges, the fixed assets are required to be stated in accordance with the requirements of US generally accepted accounting principles (US GAAP).

Identification of a fixed asset

In a large corporation, the task of identifying and locating a specific fixed asset can be difficult unless numbering is scientific, systematic, and up-to-date. A common problem in most companies is the improper maintenance of the FAR. Physical verification of fixed assets becomes a futile exercise unless the FAR is properly maintained.

It would be advisable to use a scientific numbering technique to identify fixed assets. The process of numbering fixed assets is called tagging. An identification number (combination of alphabets, and numbers) is written on the asset. Engraving the identification number on the asset is advisable in the case of Plant & Machinery where there is heavy wear and tear.

A tag verifies the existence of assets and their location, aids in maintenance, provides a common ground for communication between the Accounts Department and the end-users and recording the net book value of asset in case of sale / scrapping.

It is not necessary to tag all fixed assets. Land, buildings and vehicles all have independent systems of tracking in registration papers and survey numbers.