Top 5 Things to Consider for a Fixed Asset Inventory
Updated: Jul 28, 2021
Fixed assets refer to the tangible items of a company, such as properties and equipment. These assets are usually purchased by owners when starting up a business. They are intended for long-term use and to generate revenue.
Fixed assets are considered company investments. They are not convertible into cash within the first year of their purchase. Despite the name, fixed assets can be transferred from one location to another. Examples of these assets are software, vehicles, furniture, and office equipment. The only assets that remain fixed in one location are real estate assets, such as buildings and land, and heavy equipment that requires a hefty sum to dismantle, transport, re-assemble, and re-mount.
While the number of fixed assets differs from business to business, keeping track of it has always been necessary. All companies have their ways of listing and differentiating their assets from one another, and the choice or method of doing so depends on what best suits their business.
Fixed asset inventory is a process with which a company lists all its fixed assets and provides details such as its location and who is accountable for the asset. Tagging each asset is a part of the fixed asset inventory management system that allows easy tracking of each asset.
Fixed asset inventory is a common practice among manufacturing companies, but it is something that several companies from other industries still struggle with. Worse, some business owners and managers set it aside in favor of the demands of business operations, only to end up challenged with tracking and categorizing their assets. Fixed asset monitoring is vital to any business, and it needs an efficient, fixed asset inventory planning process to run it. Consider five things when implementing fixed asset inventory.
The first thing to consider in planning a fixed asset inventory is an asset reuse analysis, which is a cost-effective way of dealing with assets. Assets are supposed to be utilized based on their maximum operational and functional capacity. If the asset cannot be reused for its functional purpose, repurposing the asset will also be advantageous. Repurposing an asset may improve your company’s existing operational functions and be a new revenue stream source.
Asset reuse analysis may not only save you from adding to your budget to buy a replacement; it may also open new business opportunities for you.
As soon as you determine the assets to be reused, asset valuation is the next thing that you should consider. Asset valuation is the process of checking the current market value of your fixed assets.
Monitoring the present market value of fixed assets is essential, especially for companies planning to replace or purchase other assets. For assets bought at a high cost, asset valuation will prove to the company’s other stakeholders that those assets are wise investments as they are now operating long-term.
Asset valuation sets the right price for a fixed asset so that if management decides to sell a fixed asset, they would know what a reasonable selling price is. It also helps determine what the company is worth should management decide on a merger, and is a valuable tool for audit compliance, which includes validation of the value of company assets.
Through this process, assets needing a long-term maintenance program can be assessed. Asset valuation can also be used in the production of financial information as required in some countries.
Over time, all of our assets depreciate from their initial market value. The land is the only asset that is exempt from depreciation.
Depreciation value represents how much of the asset’s initial value has been used up. While there are various methods to calculate an asset’s depreciation value, it is crucial to determine if the asset has met life expectancy. In planning a fixed asset inventory, an asset can be depreciated for each year it operates while the company generates revenue from the same asset.
Assets are your company's investments. Like your personal assets, your business's fixed assets should be covered by insurance. In the long run, your fixed assets may just suddenly get damaged or break down. Repairs, admin support, and monthly maintenance may even cost you more as time goes by.
Insurance protects your business from potential fixed asset damage in cases of unexpected situations. When an insurance policy fully covers your assets, you can get rid of those expenses. Several types of insurance may be applied to your business, but it’s best to get full coverage for all of your assets if your budget permits.
In planning for a fixed asset inventory, it is also necessary to include the insurance coverage of your assets in the balance sheet.
GAAP, FASB, and GASB Reporting
Lastly, PlanWell Strategies also assists in fixed asset inventory report production, which includes three types of reports, namely: Generally Accepted Accounting Principles (GAAP), Financial Accounting Standards Board (FASB), and Governmental Accounting Standards Board (GASB). Backed with a pool of accounting and inventory planning experts, our team will help ensure that your reports adhere to those three accounting standards.
Planning a fixed asset inventory will undoubtedly take a lot of time and effort. Yet, caring for your business assets offers numerous benefits, which are just as vital as the benefits of achieving your business targets.