Valuation of fixed assets

Eleanor Sparkle
 

Assets and Capital Management on October 04, 2010.

Source of information: http://www.diamondsinvestor.com


Fixed assets can be defined as an asset which can be used for trade but cannot be redeemed as cash in the near future or financial year.
Examples of fixed asset includes machinery, vehicles, leasehold improvements, manufacturing equipment, land, buildings, equipment, real estate, and furniture.
Fixed assets are usually not used to carry out trade nor is it consumed or is sold in the normal fashion as other consumables. While accounting the fixed assets are valued but it may not necessarily be immovable. Any asset which can be utilized for a period of more than a year is also designated as fixed assets. While assigning a value for fixed assets the price is decided as purchased price minus the depreciation amount.
Thus fixed assets are those assets which are useful for than a year.
The principal is added in the assets column but the depreciating amount is put in the expense section. There are two types of fixed assets:
Tangible fixed assets are physical assets which includes land and buildings and machinery.
Investments like long term deposits are also included in tangible fixed assets. Intangible assets are assets which are abstract like goodwill, patents, copyrights and trademarks. At times the value of intangibles are deducted from the value of fixed assets. This exercise is carried out to make a fair comparison between different companies. The value of intangibles is not fixed and can vary according to the age and policies of the company.
Depreciation, amortization and depletion.
 Depreciation is the most common method of assessing the current value of a fixed asset with a limited or finite period of us. intangible assets are also valued in the same way. Assets such as mines or water which can be measured are depleted with the passage of time.
Some assets like land or investments need mot be depreciated or amortized or depleted. If at all the value changes it would have to be re-valued.
Fixed asset Inventory and Reconciliation (FAIR).
 Asset assessment can be done in many ways and FAIR or Fixed asset inventory and reconciliation is one of the common method for verification and validation of the fixed assets by wall to wall assessment of the assets.
The process of fixed asset inventory and reconciliation involves preparing a comprehensive inventory of assets followed by a validation of the data with the financial records. Fair gives a reassurance to the company that what it is paying in taxes for a given inventory is correct and allows it to make better business decisions. The different steps include :
1. A wall-to-wall verification of fixed assets with the help of different softwares.
2. A cent percent reconciliation of your assets to your fixed assets ledger. Every efforts are made to ensure that your assets matches your financial records.
3. Carry out a detailed book-to-floor review and reconciliation of the assets that was left out during the inventory. It includes non-taggable assets such as software, buildings, improvements, process and infrastructure assets etc.
4. Data consolidation and entering valuable information like make, model and serial number to each data record. A 95 % accuracy is maintained.
 5. It gives a reliable data on which you can base your future assessments of your fixed assets.