Professional Documents
Culture Documents
Fixed Assets - Revised
Fixed Assets - Revised
Reference
Change/Revision History
Version Date Process Description Author
1.0 Fixed asset accounting
Table of Contents
1. INTRODUCTION : .................................................................................................................................................................... 2
1. INTRODUCTION:
Fixed Asset is an asset held with the intention of being used for the purpose of producing or
providing goods or services and is not held for sale in the normal course of business. (It is expected
to be used for more than one accounting period.)
Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable
asset arising from use, passage of time or obsolescence through technology and market changes.
Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each
accounting period during the expected useful life of the asset. Depreciation includes amortisation of
assets whose useful life is predetermined.
Purpose of this document is to define process for Fixed Asset accounting including
accounting for addition, sale, write off, depreciation; insurance of assets, physical
verification and recording of it. It emphasizes on the identification of Fixed Assets and its
recording in Fixed Assets Register & its periodical physical verification.
This document explains flow of process, exceptions and roles & responsibility of concerned
teams as well.
There are various activities involved under Fixed Assets Accounting such as Fixed Assets
Budget Procedure, Asset Code Creation, Asset Acquisition, Asset Tagging, Asset Insurance,
Asset maintenance, Depreciation, Asset Sale/Disposal, Physical Verification, Fixed Asset
Register.
1.3.1 IN-SCOPE:
This policy document will apply to the assets managed by the company at all its units. It
would also emphasize on the additions and deletions made to the fixed assets. It also
focuses on the proper documentation of these assets.
1.3.2 OUT-SCOPE:
The out scope for this process includes- The decision making powers for asset sale/
purchase/ disposal, asset tagging, insurance process, insurance claim.
2. PROCESS DETAILS:
2.1 SIPOC:
1. As a first step, the initial proposal of capital investment should be sent to Finance
department for cost – benefit analysis unless the investment is mandatory or a statutory compliance
requirement or a replacement of existing asset. The project code of budget should be mandatorily
mentioned in the said proposal so that the investment can be identified with the budget item.
2. The Purchase Order / Purchase requisition copy should be provided to the finance
department for all capital orders including the structure of the fixed asset i.e. material and labour
and estimated breakup of the same with total estimated cost of the fixed asset.
3. The Engineering department shall initiate the installation and erection of the fixed asset
received, along with the concerned user department. Until the said asset is ready to use, the
engineering department shall submit a status report of all such assets every month to the finance
department with details of cost incurred till that date.
4. Once the asset installation is completed and ready to use, the engineering department and
the user department should submit all the relevant information of the asset in the prescribed format
attached herewith duly signed by the HOD.
5. The department shall also attach all the relevant document copies such as PO, PR, MRN,
Invoices, BOE, Lease agreement, if any, with the said prescribed capitalization format. This is
important since without these documents, it would be difficult for the Accounts and Finance
department to identify the item in the CWIP.
6. The said form should be completely filled in for all details since all of them are required for
records.
7. After receipt of the said form with related documents, the account and finance department
shall verify the same with the documents available with it and then proceed further for creation of
asset code in SAP. The said completed form shall be the base for such creation of new asset.
8. No asset can be created in SAP until the entire capitalization procedure is completed.
9. The Finance department shall create the asset code for each asset through unique number
in the SAP and shall inform the same to the user department. The user department shall put the
same number as identification number on the asset.
2. A brief note of the benefits of the up-gradation and its effect on the productivity / efficiency
/ output should be quantified to the extent possible.
3. Once the proposal is approved, the further procedure to be followed will remain the same as
in the case of new assets.
4. Once the up-gradation is completed, the engineering department along with the user
department shall submit to the finance department, a report containing the details of completion of
the work and the date of asset ready for use after modification.
C. SALE OF ASSET :
1. In case any asset is decided to be sold / disposed off, the user department shall fill in the
required details in the prescribed form and get it approved from the management.
2. Thereafter, submit one copy of the same to the accounts department and one to the
commercial department.
3. The commercial department shall process the sales proposal and execute the same.
4. The accounts and finance department shall pass the necessary entries in the FAR and books
through the FAR Module.
1. In case any asset has to be written off due to various reasons such as not found during
verification, damaged, not in use etc., then the user department shall fill in the required details in
prescribed format and send the copy to accounts department.
2. The accounts department shall prepare a working of the loss due to write off of the said
asset.
3. Thereafter, the approval for write off should be taken from the management by the user
department and accounts department.
4. After getting approval from the management, the accounts department shall proceed to
write off the said asset in SAP Fixed Asset Register and book the resulting loss in books of accounts.
1. Physical verification of all the assets shall be mandatorily done at least once in a year.
2. The procedure for physical verification shall be separately drafted and circulated for use
from time to time.
3. The impact of physical verification shall be quantified and shall be taken into books of
accounts after approval from the management.
1. In case any asset is required to be transferred from one location to another, the user
department shall submit send an authorized intimation form to the accounts department
mentioning the original location of the asset and the new location of the asset. This will help the
accounts department to update the location of the asset in the SAP Fixed Asset register and shall be
useful while subsequent physical verification of the said asset.
G. Budget Planning:
1. Budget Planning is the activity of making necessary preparation for the budget. It involves
drawing a framework of the budget. This activity must be performed by a committee headed by CFO
including Accounts Manager, Purchase Head, Personnel from Finance Department, & CFO.
2. Proposals for Fixed Assets Acquisition or Modification must be invited from all Units’ User
Department. These must be analyzed in terms of Exp. Capital Investment Required, Cost Benefit
Technique to be used, Timing of Expenditure, & Available sources for Fund Raising. The reasonability
of these capital expenditure proposals must be discussed. Based on this, priority must be defined. A
final list of proposals should be prepared for Cost-Benefit Analysis.
3. A detailed comparison activity wise should be made between Proposals received this year &
Actual Expenditure for the Last Three Years. In case of substantial differences, the reasons must be
explored & highlighted. A report must be prepared based on the discussion highlighting important
points, to be submitted to Chief Financial Officer & CEO.