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.
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).
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.
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.
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).
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.
Knowing what you've got: any company looking for a way to improve management control, cut down on unnecessary costs and improve security may be well advised to consider a computer based system for asset management.
Oct 01, 1996; Any company looking for a way to improve management control, cut down on unnecessary costs and improve security maybe well...
The time is right for outsourcing asset management: outsourcing should be considered as an option if a task needs to be done infrequently or irregularly.
Jul 01, 1997; Every now and then a manager will wake up to the realisation that a concept or technique which has been around for quite some...
What Management Accountants Do: Management Accountants Normally Do More Than Just Accounting. They Typically Advise, Plan and Assist in Business Decision-Making. Martin Quinn and Donal Rochford Have Examined 200 Job Advertisements to Get a Sense of the Role and Characteristics Typically Required
Feb 01, 2013; In the 25 years since the publication of Johnson and Kaplan's Relevance Lost, many academics have argued that the management...