I am doing some work to cleanup our accounting for fixed assets and want to train some junior accounting people in the process. Does anyone have any material they would recommend that would provide good guidance for beginners to follow?
This area is now governed by FASB ASC 360, Property Plant and Equipment. I think the basics are pretty straight forward: capitalize costs incurred to get the asset placed in service, then depreciate over its useful life using a reasonable method such as straight line, MACRS (DDB), etc.
The impairment issues around accounting for fixed assets are a bit more complicated and involve fair value considerations.
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From my perspective, accounting for fixed assets under U.S. GAAP is a relatively simple area within Accounting, but one where companies fall short. I'd suggest you make sure you address the following in training staff.
-- Company's capitalization policy - addresses minimum cost, life and method. Need to have this as the starting point.
-- Classification of Fixed Assets in the Chart of Accounts.
-- Fixed Asset internal budget, documentation and authorization processes. Policy should dictate requirements for an expenditure to end up classified as a Fixed Asset - nothing should get coded into Fixed Assets without the appropriate Management authorization's.
-- Periodic depreciation and Balance Sheet account reconciliations. Should include the maintenance and updating of subledger details to agree with Chart of Account balance MONTHLY.
-- Biggest area of failure I've seen is handling the disposal or sell off of Fixed Assets and the subsequent retirement from the books. This should be part of the monthly documentation and reconciliation processes, and any new FA additions should indicate whether this is a new asset or a replacement.
-- Address impairment issues, and taking FA's out to be held for sale. Apply the appropriate accounting rules.
-- Maintain classification in whatever subledger system is used between Accounting rules and Tax rules/property code section with IRS. This helps with the FAS109 tax timing and valuation exercises to adjust the books.
any expenditure incurred on construction of roads, not owned by company, but just for public use and indirectly benefitting company - should such expense be capitalised and depreciated as FA or should be considered as intangible and amortize.
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An area that a friend made a lot of money finding is the lost asset category. You buy an asset that is movable, but no one knows where it is... years go by and it can't be found.
Have junior people do audits on locale of each asset (one should also include buildings, they don't usually move, but it creates a closed loop cycle). Record the location, date and who identified it.
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