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Fixed Assets Management

by gbaf

Fixed assets are primarily utilized in the manufacture of specific services and goods to specific clients. This investment may range from a single computer to a fleet of vehicles to an entire factory or apartment complex for rent. For many firms, fixed assets constitute a substantial capital investment, thus it is important that the accounting is done properly. If the financial statement for such an investment is not properly prepared, then the value of the asset may either go down or even get worse, which may result in a failure of the enterprise.

Accounting methods that are applied to these fixed assets will also depend on the nature of the firm and the type of accounts receivable. It is important that these methods are compatible with the fixed capital and the capitalization of inventory. The accounting data must be prepared in such a manner that it clearly shows the value of the asset when the firm makes a payment or receives a credit, such as for the inventory count. All the expenses associated with the merchandise should also be recorded. Finally, all the sales and total sales should be added up to form the sales of the firm.

Generally, all the income and expense information should be reported in the year ending at the end of the fiscal year, which may be the current or the previous year. However, if the reports need to be prepared after the last day of the particular fiscal year, then they can be prepared according to the current reporting procedure. One of the first methods of accounting for fixed assets is to use the asset pricing method. This is an easy method, but only works well if the data already exists in the books. Asset pricing is a standard technique in business property accounting and it is used to determine the depreciation for an asset. The data that would be required to perform this calculation include the purchase price of the asset, its selling price less any amount used as trade-in, the cost of making repairs or improvements to the asset and the cost of buying a replacement asset if it were to be sold.

To determine the valuation of fixed assets using this method, one location will be selected and that location will represent the totality of fixed assets of that firm. For example, if the firm has twenty branches, each will be represented by one location. Each location will have an asset inventory chosen, which represents the inventory of the firm’s goods in that location. The inventory pertains to the quantity of goods at the specific location.

Other methods of accounting for fixed assets involve utilizing best practices in inventory management. Best practices in inventory management generally involve the following steps. It begins by developing a whole inventory framework from scratch. Next, step-by-step, a model of inventory workflow is developed based on the organizational structure. The inventory framework is refined until the best practices are incorporated and then new structures are implemented if needed.

Another way of preparing an accounting information system for fixed assets involves the use of accounting software. Accounting software for fixed assets generally includes the following features. Generally, the inventory can be entered into the system by using fixed assets data. The process for reserving materials, as well as labor, and equipment are also included. It is not uncommon for the vendor to include shipping costs into the equation when determining the cost of procuring the items.

In addition to accounting for fixed assets, another type of accounting commonly used for firms with a fixed capital investment is the capitalized cost accounting method. In this method, the value of capitalized costs is determined by adding the total expenses for fixed assets, including material and labor, to the total capital cost. The difference between the total cost of capital and the value of the capitalized cost is a net present value, or NPV.

A capitalization policy is also important in determining the NPV for calculating the costs of capitalized items. This policy limits the amount of the NPV that can be used in assessing the cost of capitalization. Capitalization policies are designed to prevent the use of too much NPV for fixed assets, or to understate the cost of capitalization. The NPV for the purpose of the business owners’ inventory control is intended to be close to zero for the purposes of fair market value of the inventory on hand.


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