Training Module ON: Government Owned Fixed Assets Management Manual (Gofamm)

TRAINING MODULE
ON
GOVERNMENT OWNED FIXED ASSETS
MANAGEMENT MANUAL (GOFAMM)
PREPARED BY:
TESFAYE TEFERI, FCCA, ACMA
CO-PREPARED BY:
TESHOME T/HAIMANOT
OCTOBER 2007
Training Module on GoFAMM
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TABLE OF CONTENTS
1 SESSION I - GETTING STARTED.............................................................................4

2 SESSION II - BASIC CONCEPTS AND PRINCIPLES..........................................14
2.1 Introduction, Basic Concepts and Principles...........................................................14
2.1.1 Supplies.........................................................................................................................15
2.1.2 Fixed Assets.................................................................................................................15
2.2 Fixed Assets’ Depreciation.........................................................................................16
2.3 Cost................................................................................................................................16
3 SESSION III - THE MANAGEMENT STRUCTURE OF GOVERNMENT
OWNED FIXED ASSETS...........................................................................................19
3.1 The Ethiopian Government Property Management System.................................19
3.2 The Role of GPAD of MoFED....................................................................................20
3.3 The role of FAMUs in each PB..................................................................................20
3.4 The Valuation Committees of PBs............................................................................20
3.5 Used Fixed Assets Store............................................................................................21
3.6 The Government Owned Fixed Assets Management Cycle.................................21
4 SESSION IV - THE ICC ACTIVITY AND REGISTER MAINTENANCE
PROCESS.....................................................................................................................24
4.1 The Initial Comprehensive Count (ICC) And Register Maintenance...................24
4.1.1 Responsibility To ‘Protect And Maintain’ Fixed Assets..........................................25
4.1.2 The Initial Comprehensive Count (ICC)...................................................................25
4.1.3 Fixed Assets Records: The UCs and the FAR........................................................25
4.1.3.1 The UCs:....................................................................................................................26
4.1.3.2 The FARs:..................................................................................................................26
4.2 Receipt of Fixed Assets..............................................................................................26
4.3 Fixed assets in store....................................................................................................26
4.4 Fixed assets under construction................................................................................27
4.5 The Chart of Account Numbers for Fixed Assets:..................................................27
4.6 Capitalization of subsequent costs............................................................................28
4.7 Assigning PIN And Marking Of Fixed Assets In Use..............................................28
4.7.1 Property identification number (PIN).........................................................................28
4.7.2 Standardization of Abbreviations...............................................................................29
4.7.3 Complete Code Number for an Asset.......................................................................30
4.7.4 Further Examples of Fixed Asset Numbering..........................................................30
4.7.5 When should Fixed Assets be Given PIN?..............................................................30
4.7.6 Marking or Tagging of Fixed Assets.........................................................................31
4.8 The Annual Physical Count And Summary Schedule............................................31
4.8.1 Annual Physical Count................................................................................................31
4.8.2 Annual Summary Schedule (ASS)............................................................................31
5 SESSION V - VALUATION OF FIXED ASSETS....................................................33
5.1 Valuation Of Fixed Assets..........................................................................................33
5.2 The ICC Activity – Valuation Of Fixed Assets In Use.............................................33
5.2.1 Valuation Of Motor Vehicles And Certain Machinery.............................................34
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5.2.2 Valuation of Boats........................................................................................................36
5.2.3 Valuation of Plant and Machinery, Furnishings and Fixtures, and Office
Equipment.....................................................................................................................37
5.2.3.1 For valuation of Office Furniture and Fixtures; and Office Equipment based on
condition or condition of the assets:..........................................................................37
5.2.3.2 For valuation of Plant and machinery....................................................................38
5.2.4 Valuation Of Buildings – Residential And Non-Residential And Infrastructures 39
5.3 Valuation of New Fixed Assets..................................................................................39
5.3.1 Fixed assets acquired through purchase or construction......................................39
5.3.2 Fixed assets acquired through donation or other means......................................39
5.3.3 Fixed assets under construction................................................................................40
5.4 Documentation.............................................................................................................40
6 SESSION VI - THE REGISTER MAINTENANCE PROCESS, FIXED ASSETS
RECORDS....................................................................................................................42
6.1 Register Maintenance.................................................................................................43
6.1.1 Newly received fixed assets.......................................................................................43
6.1.2 Fixed Assets in Stores:...............................................................................................43
6.1.3 Fixed Assets with Users or User Departments – New Issues..............................44
6.1.4 Fixed Assets with Users or User Departments – Transfer from construction in
progress to fixed assets proper.................................................................................45
6.1.5 Fixed Assets with Users or User Departments - Transfer between custodians 45
6.1.6 Return of used fixed assets to stores.......................................................................45
7 SESSION VII - ACCOUNTING TREATMENT OF COST/VALAUATION OF
FIXED ASSETS............................................................................................................47
7.1 Recording the cost/ valuation of Fixed Assets........................................................47
7.2 The Cash Basis of Accounting...................................................................................48
7.3 The Modified Cash Basis of Accounting...................................................................48
7.4 The Accrual Basis of Accounting...............................................................................48
7.5 Transitional Arrangement for the Treatment of Fixed Assets...............................49
7.6 Fixed assets under construction................................................................................52
7.7 The ICC activity - Fixed assets in use......................................................................52
7.8 The ICC activity - Fixed assets Under Construction...............................................54
7.8.1 Initial Entries of Constructions in Progress..............................................................54
7.8.2 Normal Activity - Constructions in Progress completed.........................................56
7.8.3 Recording in Fixed assets and fixed assets Fund accounts:................................59
7.9 Close Cooperation between FAMU and FDs of PBs.............................................60
8 SESSION VIII - DEPRECIATION..............................................................................61
8.1 Depreciation..................................................................................................................61
8.2 The transitional arrangement.....................................................................................62
8.3 Depreciation Methods and Rates..............................................................................62
8.4 The Straight line method.............................................................................................62
8.5 The Declining Balance method..................................................................................63
8.6 Other Depreciation methods......................................................................................63
9 Proposed Depreciation Method and Rates: the Straight-line method.................63
9.1 The Straight line Method.............................................................................................63
9.2 Depreciation Rates......................................................................................................64
10 SESSION X - DISPOSAL OF FIXED ASSETS.......................................................70
10.1 Why disposal of fixed assets?....................................................................................71
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10.2 When to dispose fixed assets....................................................................................72
10.3 How to dispose?...........................................................................................................73
10.3.1 Disposal by sale...........................................................................................................74
10.3.2 Private negotiation.......................................................................................................77
10.3.3 Donation to other Governmental public bodies (Schools, Universities, research
centers, etc)..................................................................................................................77
10.3.4 Cannibalization as spare part.....................................................................................78
10.3.5 Fixed Assets sold to Employees................................................................................78
10.3.6 Sale as scrap................................................................................................................78
10.3.7 Destruction, dumping or burying................................................................................78
10.4 Disposal Committee.....................................................................................................79
10.5 Receipts from Disposal...............................................................................................79
10.6 Accounting for disposal...............................................................................................80
11 SESSION IX - REPORTING......................................................................................82
11.1 The Trial Balance.........................................................................................................82
12 SESSION XI - OTHER ISSUES................................................................................85
12.1 Ownership of assets....................................................................................................85
12.1.1 Ownership of Motor Vehicles, Equipment, Machinery that exist n the buildings
and Recording in the FAR..........................................................................................86
12.2 Insurance.......................................................................................................................86
12.3 Computerization of the fixed assets management.................................................86
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1 SESSION I - GETTING STARTED
Workshop opening - The Government Property Management

Department (GPAD) manages this process.
Introduction of trainers and participants - Trainers

introduce themselves. Participants of the Workshop also introduce themselves one
by one - where they come from, their responsibility in the office they are currently
working in, etc. After this, the group shall break into two. Each trainer shall be
responsible for each group.
Introduction to ice break, warm ups and energizers

- Each group shall elect persons as “Warm up” instructor; Energizer facilitator,
Feed Back team, and Timekeeper and Supervisor.
Select warm up instructor - This person shall be responsible to

prepare physical exercises to be performed before the start of training every
morning. The first five minutes as soon as the training is started shall be saved for
this purpose.
Select energizers facilitator - Energizers keep all of us alert. We

may be lucky enough to have one humorous friend among us. Please try to identify
this person. If not, the energizer facilitator can invite different participants to share
their experiences, to tell us jokes, etc whenever we feel tired.
Selection of feed back teams - Two or three persons will be

identified to collect feedback every evening after class in the way they like. The
feedback could be on the overall training program and the coverage of the day.
They can include feedbacks on training facilities. They can talk to participants; they
can give questionnaires, etc. Every morning after the warm up session, the
representative of the feed back team shall present the feedbacks obtained from the
participants.
Timekeeper & supervisor - Shall control that all participants are in

class in time, tea and lunch breaks are respected, and every participant is busy at
least during the training time.
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Tr a i n i n g t i m e
From 8:30AM to 5:30 PM
T e a Br e a k :
Morning - From 10:30AM to 11:00 AM
Afternon - From 3:30PM to 4:00PM
Lu n c h Br e a k
From 12:30AM to1:30PM
Timekeeper & supervisor - In addition to keeping time, as a

supervisor, he ensures that the following ground rules are respected.
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Gr o u n d R u l e s
Re s p e c t e a c h o t h e r , e ve n wh e n yo u
d is a g r e e
Ag r e e t o p a r t ic ip a t e a c t ive l y
H a vin g t h e r ig h t n o t t o p a r t ic ip a t e in a n
a c t ivit y
t h a t ma ke s yo u u n c o mf o r t a b l e
Lis t e n t o wh a t o t h e r p e o p l e s a y wit h o u t
in t e r r u p t in g t h e m
Re s p e c t in g c o n f id e n t ia l it y
B e in g o n t ime
Tu r n in g o f c e l l -p h o n e s
Group formation - Now it is time to form groups. Make sure that people
coming from the same location are not in one group, male and female are mixed
up so that there are female participants in each group; and young and adult
participants are mixed up.
After the group is formed, let every body be in his/her group. Group members
introduce each other. Every group member should learn and then start to call his
group member by name.
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Per-training assessment - As a base line, Please answer the
following question in-group. The answers are to be presented by group
representatives to the class.
 What type of fixed assets management system exist in

your PB (how is fixed asset purchased, received, issued to
the user, managed and disposed)?
 What is your role in the management of fixed assets of

your PB?
Introduction to training methodology

Training is defined as learning that is provided in order to improve performance on
the present job. This includes training new personnel to perform their job,
introducing a new technology, or bringing an employee up to standards.
A person's performance is improved by showing him/her how to master a new or

established technology. The technology may be a piece of heavy machinery, a
computer, a procedure for creating a product, or a method of providing a service.
Training is different from Education. Education is training people to do a

different job. It is often given to people who have been identified as being
promotable, being considered for a new job either lateral or upwards, or to
increase their potential. Unlike training, which can be fully evaluated immediately
upon the learners returning to work, education can only be completely evaluated
when the learners move on to their future jobs or tasks. We can test them on what
they learned while in training, but we cannot be fully satisfied with the evaluation
until we see how well they perform their new jobs.
In short, education focuses on learning about but training on learning how (Millano
& Ullios 1998).
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Our training methodology shall be an experiential learning
where by we learn from the experience of the participants.
Tell me --------- I forget, show me ------I remember, Involve me --------I understand.
(Ancient proverb)
We use a two way training. Trainers are not lecturers. They are facilitators. They
introduce new ideas and then facilitate discussions, comments, suggestions, and
consensus from the participants. Participants relate these with their experience
and then start to develop their skills, as they will get immediate feedback.
Participants’ expectations and concerns
Let participants go back in-group and try to

identify their expectations from the training,
and their concerns why they might not get
what they expected.
Overall Objective of training

The objective of this training is to train future trainers on
Government Fixed Assets Management Manual (GoFAMM).
It is a Training of Trainers (TOT).
Specific objective of training


To explain the shift to the new system of the Fixed Assets
Management;
 To explain the process of identifying the location, condition,
ownership of all assets possessed by a PB;
 To explain how and why comprehensive count of fixed assets is
conducted;
 To explain the methods of assign tag numbers for the fixed assets;
 To explain the method of assigning value for all fixed assets;
 To explain what records are kept in the management of fixed
assets;
Expected outcome
 To explain - atofthe
the methods end of
depreciating thethe training,
cost of fixed assets;
 To explain
participants arethe expected:
way how to incorporate value of fixed assets in the
accounting records so that the book value of assets owned and
being use are reported;
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To understand the new system of the Fixed Assets Management;
· To understand the process of identifying the location, condition, ownership

of all assets possessed by a PB;
· To understand how and why comprehensive count of fixed assets is conducted;
· To understand the methods of assign tag numbers for the fixed assets;
· To understand the method of assigning value for all fixed assets;
· To understand what records are kept in the management of fixed assets;
· To understand the methods of depreciating the cost of fixed assets;
· To understand the way how to incorporate value of fixed assets in the accounting
records so that the book value of assets owned and being use are reported;
· To relate the new system with their current situation and be able to
appreciate the difference;
· To be able to provide training to other colleagues on the new system;
Coverage of the training - The Manual for the fixed assets

management (GoFAMM) covers the topics indicated in the following table. The
training covers all these topics in detail:
Acronyms
I. PREAMBLE
1. THE DEFINITION OF FIXED ASSETS
1.1. Assets that fall within the definition of fixed assets
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1.2. Assets that have permanent nature but does not fall within the definition of
fixed assets
1.3. Major maintenance that are capitalized
2. STRUCTURE FOR THE MANAGEMENT OF GOVERNMENT

FIXED ASSETS
2.1. The Government Fixed Assets Management Cycle
2.2. The role of MoFED GPAD
2.3. The role of FMAUs in each PB
2.4. The valuation committees of PBs
3. THE ICC AND REGISTER MAINTENANCE PROCESS

3.1. Fixed assets in use
3.2. Filling system for the UC and FAR
3.3. Fixed assets in store
3.4. Fixed assets under construction
4. ASSIGNING PIN AND MARKING OF FIXED ASSETS IN USE

4.1. Property identification Number (PIN)
4.2. Marking of Fixed Assets
5. VALUATION OF ASSETS WITH OUT COST

6. CHANGES IN THE REGISTER

6.1. New purchases of assets,
6.2. Transfer from assets under construction to fixed assets
6.3. Transfer between custodians
6.4. Return of used asset
7. ACCOUNTING TREATMENT OF COST OF ASSETS
8. INCORPORATING THE INITIAL VALUE OF EXISTING ASSETS

IN THE ACCOUNTING RECORDS
9. DEPRECIATION
10. ANNUAL PHYSICAL COUNT AND ANNUAL SUMMARY

SCHEDULE
10.1. Annual Physical Count
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10.2. Annual Summary Schedule (ASS)
11. DISPOSAL OF FIXED ASSETS
12. REPORTING
13. OTHER ISSUES

13.1. Ownership of assets
13.2. Insurance
13.3. Computerization of the fixed assets management
Formats newly introduced or modified

The formats mentioned below are given in the manual as annex. Each format shall
be explained during the course of the training
Annex I – Fixed Assets Count Sheet (FACS)

Annex II – Fixed Assets With Users Control Card/ User Card (UC)
Annex III – Fixed Assets Register Card (FAR)
Annex IV– Fixed Assets under Construction Summary Table (FAUCST)
Annex V –Receipt for Fixed Assets Received (RFAR)
Annex VI –Receipt for Fixed Assets Requested & Issued (FAIRR)
Annex VII– Property Identity Number (PIN) Register
Annex VIII – Fixed Assets Transfer Form (FATF)
Annex IX – Receipt for Articles or Property Returned (RAPR)
Annex X –Used Assets Reissue Receipt (UARR)
Annex XI – Get Pass for Fixed Assets (GP)
Annex XII – Journal Voucher
Annex XIII – Trial Balance (Modified)
Annex XIV– Fixed Assets Report –Part One
Annex XV– Fixed Assets Report – Part Two
Annex XVI– Fixed Assets Report – Part Three
Group works - At the end of each session, group works are provided.
These are usually performed after the afternoon tea break so that participants
might get relaxed at the end of the day and could continue to work after the training
hours too.
Presentation - Every morning, the first 30 to 40 minutes is used to present

each group’s answer to group works and exercises. Additional 15 minutes shall be
allowed for plenary discussions.
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2 SESSION II - BASIC CONCEPTS AND

PRINCIPLES
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Le a r n in g O b j e c t iv e s :
On completion of this Session,

trainees should be able to understand the following:
The Definition of Fixed Assets;
The meaning of Depreciation;
The Definition of Depreciable amount;
The Meaning of Supplies;
The meaning of Residual Value vs. Nominal Value;
The meaning of Useful Life; and,
The Definition of costs.
2.1 Introduction, Basic Concepts and Principles

Capitalization and Reporting is a new phenomenon as concerns Ethiopian
Government Owned Fixed Assets. The Government accounting system
reform has moved to the modified cash basis system. Fixed assets are not,
however, treated and reported as assets in the accounts and in the
Government’s financial statements.
The present attempt is to compile financial data (cost/ valuation and

depreciation) on existing fixed assets that could be recorded in the General
Ledger and reported in a memorandum form in the financial statements and
could be easily used for final incorporation in the Government Accounting
system when the full Accrual Accounting System is adopted.
Fixed Assets have distinct concepts and principles that must be understood.
The International Financial Reporting Standards (IAS 16) – Property Plant
and Equipment (2003) is a distinct such standard. Fixed assets have
separate treatment and also separate and distinct presentation in the
financial statements including disclosures in the Notes to the Financial
Statements according to IAS 1 – Presentation of Financial Statements.
The concepts and principles include:

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- Capitalization of tangible fixed assets in the accounting system

and depreciation over their useful lives;
- The determination of costs/ valuation to be capitalized in the
accounts;
- Capitalization of subsequent costs incurred on the assets;
- Measurement subsequent to initial recognition;
- Determining methods and annual rates of depreciation; and,
- Review of the useful lives in relation to the conditions of the
assets.
According to Council of Ministers Financial Regulations No. 17/ 1997,

distinction is made between two types of Government Property – Fixed
Assets and Supplies.
2.1.1 Supplies
According to the above-cited Regulations, Supplies represent all pubic
property other than fixed assets in use and includes all assets that will be
used within one year of purchase and costing less than Birr 200.
2.1.2 Fixed Assets

The term ‘Property, plant and equipment’ is nowadays used according to the
International Financial Reporting Standards (IFRS 2003) instead of ‘fixed
assets’ (Para. 6 of IAS 16).
The FGE Chart of Accounts (Manual 3, FGE Accounting System, Vol. II, FGE
Chart of Accounts, Version 1.0, Project Report: A – 36, January 2002) has
also given definitions for fixed assets under Account No. 6300: Fixed Assets
and Construction. The definition excludes Fixed Assets acquired other than
through purchase or construction.
Authoritative definition, the Council of Ministers Financial Regulations No. 17/1997.
The Regulations define Fixed asset as ‘tangible asset costing Birr 200 or
more that is in operational use and that has a useful economic life of more
than one year such as furniture, computers, heavy equipment, vehicles,
ships and aircraft, buildings, roads, sewers, bridges, irrigation systems,
dam.’ (Article 2 (12) of the Regulations cited above).
The Regulations further indicate that Fixed assets are a part of ‘capital
expenditures’ and comprise ‘the acquisition, construction, preparation,
enhancement or replacement of roads, buildings and other structures; the
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acquisition, installation, or replacement of movable and immovable plant,
machinery, and apparatus, vehicle and vessels.’ (Article 2 (3 b & c) of the
Regulations cited above).
2.2 Fixed Assets’ Depreciation

Depreciation charges represent cost expirations in the service life of fixed assets,
other than wasting assets, due to wear and tear through use and lapse of time,
obsolescence, inadequacy, or other physical or functional cause.’ (Municipal and
Governmental Accounting, Fourth Edition, by Irving Tenner, Ph. D., C.P.A. and
Edward S. Lynn, Ph. D., C.P.A., Prentice-Hall, Inc., Englewood Cliffs, H.J., 1960,
P. 320).
Depreciation defined according to International Financial Reporting Standard

(IAS 16, Definitions, 2003) ‘is a systematic allocation of the depreciable amount of
an asset over its useful life.’
Useful life is either:
(a) The period of time over which an asset is expected to be used by the
enterprise; or
(b) The number of productions or similar units expected to be obtained from

the asset by the enterprise.’
Depreciable amount: ‘is the cost of an asset, or other amount substituted for cost
in the financial statements, less its residual value.’
Residual Value (Nominal value) - ‘is the net amount which the enterprise
expects to obtain for an asset at the end of its life after deducting the expected
costs of disposal’. In the Government Owned Fixed Assets Management Manual
(GOFAMM) the residual value is the nominal value (Birr 10 per item of fixed asset)
left when the asset is fully depreciated.
2.3 Cost
The amount paid or otherwise determined to acquire a fixed asset and to put it
into use is the cost of that asset. The following are examples of how cost of
fixed assets is determined.
 Local purchase: Fixed assets acquired through local purchase are

valued at cost of purchase.
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 Foreign purchase: Fixed assets acquired by foreign purchase are

valued at suppliers invoice price, bank charges, customs duties,
clearance charges, transport and other costs up to the final delivery
point.
 Construction by contractors: is the amount agreed as eventually

ascertained by the Public Body’s or other independent supervisors of
the works through periodic and final work certificate.
 Construction by the Public Bodies (PBs) themselves: cost incurred in

the construction by purchasing/ providing the materials needed and
using acquired labor force in which case these costs have to be
accumulated until completion of the works.
 Gifts/ donations: The value of assets acquired through gifts/ donation

are the appraised value at the time their acquisition if their costs
cannot be obtained.
 Assets obtained by other means: The value of assets acquired on

account of non-payment of taxes, for instance, (if the assets are not
for sale) could be the amount of taxes including interest and
foreclosure costs or the appraised value of the property whichever is
the lower.
The value of fixed assets acquired through confiscation is the value given
through estimation by professionals.
GROUP WORK
1. Define the following terms:
i) Fixed assets as per your own current knowledge;
ii) Fixed Assets according to International Financial Reporting

Standards;
iii) Fixed Assets according to Council of Ministers Financial

Regulations No. 17/1997;
2. What is the difference between ‘Supplies and ‘Fixed Assets’?
3. What do you understand by the term ‘Capital Expenditure’?
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4. What are the meanings of ‘Depreciable Amount, Residual Value, Nominal
Value and Useful Life’ as concerns Fixed Assets?
5. A PB acquired a special diskette to be used for storing and transporting data

from place to place for Birr 1,000 and a special flash disc for Birr 500 to be
similarly used. Both assets have estimated useful life of two and a half years.
However, the suppliers have not guaranteed the life. How should these assets
be viewed in the light of the definitions of fixed assets in the Council of
Ministers Regulations 17/1997? What are the entries required according the
existing accounting system?
6. A PB purchased a motor vehicle from MoENCO for Birr 500,000 with spare
parts to be used for the next three years and tools that are kept in the car.
There were also four complete extra tires that can only be used when the
present tires fitted on the vehicle and the extra tyre loaded on the car is worn
out following the rules of the Government. The cost of spare parts, tyres and
tools included in the purchase price of the vehicle are Birr 25,000, Birr 4,000
and Birr 2,500 respectively.
1) Determine the cost of the motor vehicle.
2) What are the procedures required in order to receive the items

purchased by the store and then issue to users? Who is responsible for
what?
3) What is the current practice for recognizing the total expenditures

incurred in the books of accounts?
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3 SESSION III - THE MANAGEMENT STRUCTURE

OF GOVERNMENT OWNED FIXED ASSETS

The Ethiopian Government Property Management s ystem in general;
The Management Structure of Government Owned Fixed Assets
- The Role of GPAD of MoFED; and,

- The Role of FMAU in each PB;
Valuation Committees;
‘Used Fixed Assets’ Stores; and,
The Government Fixed Assets Management Cycle.
3.1 The Ethiopian Government Property Management

System
The Ethiopian Government Property management system is mainly concerned with
two types of assets:
 Supplies or stocks or inventories; and,

 Fixed assets.
Items purchased or acquired for consumption and fixed assets whose individual
cost is less than Birr 200 and with a useful life of less than one year (or even more
in some cases) qualify as supplies. Further, fixed assets received by the stores are
considered as supplies until they are issued to users or are disposed of. The
acquisition and disposal of fixed assets is thus part of the Stock Management
system while the items remain with the stores.
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The management of Government Owned Fixed Assets is about the duties of care,
control and effective use of the fixed assets. The management of fixed assets is
now to include accounting treatment in the financial accounts of the Government.
The management of fixed assets in general encompasses the following:
(1) Starts when fixed assets are issued from the stores to users or user
departments; and,
(2) Ends when the asset is returned to ‘Used Fixed Assets Store’ for any
reason.
3.2 The Role of GPAD of MoFED

The Government Property Administration Department (GPAD) of the Ministry
of Finance and Economic Development (MoFED) will be responsible for,
among others, the following:
(1) Issuing directives for the Management of Government Owned Fixed

Assets; and,
(2) Monitoring implementation of the GOFAMM which includes the following
matters
3.3 The role of FAMUs in each PB

The roles of Fixed Assets Management Units (FAMUs) in each Public Body (PB)
can be divided into two major categories as follows:
2.3.1 The Initial Comprehensive Count (ICC) – the ICC Season
This is the initial critical activity of main concern which has to take place within
a defined time-frame - The ICC Season - to achieve the objective of the
Government Owned Fixed Assets Manual (GOFAMM). The activities to be
performed are listed out in the GAFAMM.
2.3.2 The normal management season
This concerns what must be done regularly by each FAMU in each PB

henceforth and the tasks to be regularly done are given in the GOFAMM.
3.4 The Valuation Committees of PBs

Government Owned Fixed Assets’ valuation is done at two points as follows:
a) On acquisition: to record acquisition cost/ valuation; and,

b) On disposal: to establish fair value for disposal (sale).
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A Valuations Committee must be established which must be:
 Composed of three to five members with FAMU as Chairperson; (NB:

Internal Audit must not be a member of the Committee).
 Composed of experts or professionals; and,
 Given a Terms of Reference (ToR) and written Guidelines.
3.5 Used Fixed Assets Store

Each Public Body maybe required to set up a ‘Used Fixed Assets Store’ to
manage fixed assets returned from Users.
‘Used Fixed Assets Stores’ can serve the following purposes:
1. Facilitates efficient management of stock of ‘Used Fixed Assets’;

2. Segregation serves to control possible mix up of Used and New fixed
assets; and,
3. Facilitates regular review and their timely disposal/ clear up;
3.6 The Government Owned Fixed Assets Management

Cycle
The following diagram shows the fixed asset management cycle of the
Government of Ethiopia:
Stock management Fixed asset management Stock management

system cycle system
Acquisition Initial count of existing assets
Returned to
Stock Used-stock store
Valuation of existing assets
 Supplies
(consumables)
Entry into the fixed assets  Fixed assets
 Fixed assets registers Card
Entry in to Custodians’ Card  Supplies

 Supplies
(long-term)
(long-term)
Annual Fixed assets count
Disposal
In store
Annual Summary Schedules
Value of Fixed Assets

included in financial ledger
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After returned to store, assets could be
reissued and reused.
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Figure 1 - GOE Fixed Assets Management System
The above diagram portrays three situations as follows:
1. The two boxes on the left and right sides in red concern Stores
Management – Acquisition on the left and Returned/ Retirements to ‘Used
Fixed Assets Stores’ on the right;
2. The center boxes in yellow concerns Fixed Assets Management cycle.
3. The arrows show movements of fixed assets from stores to Users and vice
versa.
When fixed assets are acquired they must be received by the stores as stock
items. Custodianship responsibility will be that of the stores.
When issued to Users or User Departments, then both the nature of the
transaction and the responsibility change. The assets and related responsibility will
be passed onto the fixed management system.
When they are returned to the ‘Used Fixed Assets’ store subsequently, the fixed
assets become stock items once again until they are re-issued to Users or
disposed of. The cycle continues.
The fixed assets management cycle indicated in the yellow box starts with the
Initial Comprehensive Count (ICC) of existing fixed assets and then follow
valuation, registration and tagging, recording the valuation in the financial ledgers,
and annual physical inventorying that takes place regularly.
GROUP WORK
1. What do you understand from the diagrammatic presentation of the Fixed

Assets Management cycle? How do you relate it with the current practice of
your PB?
2. What are the roles and responsibilities of GPAD and FAMUs? How is this
different from what exists now in you PB?
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3. What do you understand by the Initial Comprehensive Count (the ICC

activity)? Why is the ICC activity required? What difficulty do you expect in
conducting it?
4. When do fixed assets become fixed assets? Was the practice in your PB
the same as this one?
5. What are the purposes of ‘Used Fixed Assets’ stores? Could this be
practical? Why or why not?
6. A PB has organized a committee to handle the ICC activity as per plans. A

committee composed of seven members was set up. Because the
organizers have experiences in establishing committees, they felt that it
would be appropriate that the Chairmanship be given to the Head of the
Internal Audit since he has shown commitment to such activities in the past.
Besides his academic qualifications in engineering and legal fields in
addition to internal audit are considered extremely valuable for the activity.
The other important issue considered is his independence. The organizers
had in the past attended internal audit seminars and have heard that
internal audit must add value. Therefore, they felt that this is an area where
internal auditors should play their part. The choice was endorsed by the
organizing members. There was no consultation done with the GPAD of
MoFED. Comment.
23
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4 SESSION IV - THE ICC ACTIVITY AND REGISTER

MAINTENANCE PROCESS
ASSIGNING PIN AND MARKING OF FIXED ASSETS

IN USE
AND
THE ANNUAL PHYSICAL COUNT OF FIXED
ASSETS

T he Initial Comprehensive Count (ICC):

The Responsibility of Protecting and Maintaining Fixed
Assets;
The Procedures involved for carrying out ICC activities;
Fixed Assets under Construction.
Receiving/ Issuing of Fixed Assets;
· Fixed Assets (also Used Fixed Assets) in Stores; and,
 Fixed Assets with Users/ User Departments.
Fixed Assets Records:
 The Users Control Cards (UCs); and,
 The fixed Assets Registration cards.
Fixed Assets Numbering and T agging:
 Property Identification Numbers (PIN).
Annual Fixed Assets Inventory;
Annual Summary Schedule (ASS).
4.1 The Initial Comprehensive Count (ICC) And Register

Maintenance
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4.1.1 Responsibility To ‘Protect And Maintain’ Fixed

Assets
According to Article 61/ 3 of the Council of Ministers Financial Regulations No.
17/1997, the responsibility to ‘protect and maintain’ fixed assets:
a) By delegation, rests on those with primary responsibility for the use of the
Fixed Assets and are held accountable for Custodian responsibility; and,
b) Entails keeping central records of names of those with custodian
responsibility and locations of the assets.
4.1.2 The Initial Comprehensive Count (ICC)

The Initial Comprehensive Count (ICC) is not an institution nor is it a
department, an office or a body. It is an activity that has to be carried out within
a given time frame to achieve the main initial objective of the Ethiopian
Government Fixed Assets Management system. The ICC, as the name says it,
is the first task that is to be undertaken in establishing the data concerning
Government Owned Fixed Assets to be input into the Government Accounts.
The ICC and the register maintenance and the updating process are, therefore,
the main activities that are going to be carried out as soon as the Government
Owned Fixed Assets Management Manual (GOFAMM) is put to use.
The GPAD shall set a time frame for the comprehensive physical count,
tagging, the register maintenance, valuation, and reporting; in short for the
accomplishment of the task.
The ICC activity must be carried out in accordance with procedures, divided
into activities that must be done before the count starts, during the count and
After the count ( please refer to the Manual for the detail procedures required
during those three occasions). Advance preparations have to be made before
the count starts. That concerns the ‘Before the Count’ procedures. The
counting must proceed as planned during the count and if there are things to be
looked into while the count proceeds then actions must be taken then and
there. This is in the ‘During the Count’ procedures. Clearance of pending
matters, reconciliations of counts with records, summarizing and reporting the
findings and record keeping is the final issue which is to be done ‘After the
Count.’ There may sometimes be overlaps among these activities.
4.1.3 Fixed Assets Records: The UCs and the FAR

Both the Fixed Assets with Users Cards (UCs) and the Fixed Assets Registration
Cards (FAR) are specially prepared cards for use in Fixed Assets controls.
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4.1.3.1 The UCs:

The UCs serve to record and control fixed assets in the hands of Users or with
those with custodian responsibilities. Applicable procedures include:
 Each User shall be given specific identifying number, User Id. No

other User shall be given the same number.
 The User shall always use his Id in all correspondences concerning
Fixed Assets under his responsibility;
 The User Id shall be written on all UCs of each User; and,
 UCs shall be filed in the sequences of the User IDs.
4.1.3.2 The FARs:

The FARs serve to control all fixed assets of the PB whether they are in the hands
of users or not, except those in the stores.
FARs are filed and grouped according to:
 The Fixed Assets account categories (Ref.: Federal Government of
Ethiopia, Chart of Account Numbers 4500 group); and,
 The Property Identification Numbers (PIN) of each asset.
The way they are kept is that a set of FAR Cards and a Bin (say Bin 1, 2, 3, etc.)
will be maintained for Fixed Assets grouped under Account Numbers 4521, a set of
cards with another Bin (say Bin 2) for Account Numbers 4523 and so on.
Wooden or metallic boxes or box files, where the number of FARs is small, with
separators can be used for filing the FAR cards.
4.2 Receipt of Fixed Assets

All Fixed Assets must always pass through the Stores with Receipt for Articles of
Property Received (Model 19) acknowledging receipt and then issued to Users or
User Departments through Receipt for Articles of Property Issued (Model 22).
4.3 Fixed assets in store

Fixed assets shall be kept by the stores until they are issued to Users or User
Departments or until they are disposed of. Though their existence and condition
26
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may need to be confirmed as part of stock items for information purposes, it must
be understood that the ICC activity does not cover these.
4.4 Fixed assets under construction

Fixed Assets under Construction become fixed assets in use when the
constructions are completed and handed over to Users or User Departments. Until
this happens, they are treated as Fixed Assets under Construction. The ICC
activity also covers these assets which must be listed out and counted separately.
The tasks that should be done concerning such assets during the ICC activity
include the following:
a) Identifying all construction works in progress, securing and

documenting all relevant information.
b) Summarizing the details onto the Fixed Assets Under Construction
Summary Table (FAUCST) for subsequent follow up.
c) Submitting a complete final report including recommendations to the
Head of the PB, the Internal Audit Department of the PB and the
GPAD.
4.5 The Chart of Account Numbers for Fixed Assets:

The Chart of Accounts are location numbers for accounts. Like postal
addresses or e-mail addresses or like house numbers, they must be distinct.
The same code number cannot be given to more than account. Otherwise
confusions arise and the whole accounts will be in a mess. Therefore, adequate
controls must be exercised when establishing the account numbers.
There will be two groups of code numbers for Fixed Assets in the Ethiopian
Government Chart of Accounts:
a) Those falling under the major category of ‘Property and Equipment’ with
Account Code Numbers 4520 to 4599 for each group of assets; and those
classified under ‘Construction in Progress’ with Account Code Numbers
4500-4519.
These account numbers are not presently used because the fixed assets of
Public Bodies are not capitalized in their accounts as well as in those
maintained by the Central Accounts Department (CAD) of MoFED. These
code numbers will be the ones to be used for compiling the necessary data
for capturing the costs and related depreciation of fixed assets for recording
27
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in the Government accounting system initially as memorandum entries and
reporting, and later on for full incorporation into the accounting system.
b) The other Chart of Account numbers that are being used at present are
group numbers 6300 under the title ‘Fixed Assets and Construction’ under
expenditures or period costs. These record the expenditures/ expenses
which are closed at the end of each accounting year to Net Asset/Equity
account.
Extracts of the Ethiopian Government Chart of Accounts are given at the end of
this Module.
Assets that are of a permanent nature but which do not fall within the definition of
fixed assets given in Session One because their cost is less than Birr 200 deserve
adequate control. An internal control system with the necessary records needs to
be designed.
4.6 Capitalization of subsequent costs

Major overhaul costs to machinery or vehicles should be capitalized if these
definitely increase the capacity, efficiency and useful life of the asset. The total
cost of the asset should not, however, be greater than the market value or the
replacement cost.
4.7 Assigning PIN And Marking Of Fixed Assets In Use

4.7.1 Property identification number (PIN)
Property Identification Numbers (PIN) are numbers that uniquely identify Fixed
Assets. The PIN could be alphanumeric – using alphabets, numbers and other
characters.
The suggested PIN structure would look like the following:
What Public Source of Group of Make or Departme Specific

does it Body budget the Asset sub group Location nt or Code of
indicate Code Code of assets Code Section or the
Division asset
Code
Code MOFED 101 4521 01 HO FD 0001
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I. Public Body: identifies responsible PB. e.g., ‘MoFED’ is for Ministry of
Finance and Economic Development.
II. Source of budget – Assets could be bought using the capital budget
obtained from the government. Similarly, assets can be bought using other
donors fund or assets could be obtained in kind from the donors. To help
identification of assets in the name of each and every donor or the
government, three digits code shall be used. The code is used as follows:
III. Group of the Asset Code – is the group Chart of Account code. In the above
example, the asset is a motor vehicle and the group code number is 4521.
For residential buildings, the group code number is 4525. For office
equipment, the group code number would be 4531 and so on. If new group
of assets has to be created, the GPAD and the CAD of MoFED have to be
consulted.
IV. Make or sub group of assets code - _ This code is used to identify sub
groups of assets. For example, furnishings and fixture is a general group.
Within it, there are sub groups like, chairs, tables, cupboards, curtains, etc.
Similarly within vehicle, sub groups could be Tractor, Busts, Dumper,
Bulldozer, etc. For each sub group a two digits code shall be assigned.
Each public body shall develop a chart showing standard two digits code for
sub groups of assets. The following is an example as to how to prepare the
chart.
V. Location Code – identifies location of the asset. Each PB will have its own
way of organizing this location code. “HO” above stands for Head Office. If
the location is, say, Bahar Dar, the code would be “BD”, for Dire Dawa,
“DD”, and for Awassa, “AW”, and so on.
VI. Department or Section or Division Code – is the specific location of the

asset within the PB and follows the organization structure. For example,
“FD” for Finance Department, “AD” for Administration Department and “GS”
for General Service, could be used. For subdivisions, for instance, Budget
Section under Finance, the code “BG” could be used instead of “FD” to
directly identify the asset.
VII. Specific Code for the asset – is the specific counting number given to that
specific asset. In the example above, 0001 (four digits) identifies the asset.
4.7.2 Standardization of Abbreviations

The abbreviated letters to be used must be properly defined henceforth and
officially circulated. Once the code is selected, it should be used consistently.
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4.7.3 Complete Code Number for an Asset
The complete PIN for the first Motor Vehicle in the above example looks like the
following:
MoFED-101-4521-01-HO-FD-0001
4.7.4 Further Examples of Fixed Asset Numbering

You are given the following particulars to prepare the PIN for assets.
Account Make Source

Name of Public Body Code or sub of Location/ Type of Other
group budget Department Asset particular
of s
assets
1. Ministry of Capacity 4531 01 101 Dire Dawa, A First
Building (MoCB) Budget Section computer computer
(DD, BG)
2. Ministry of Revenue 4521 02 102 Mekele, A motor The
(MoR) General Bike fifteenth
Service (Mkl, item
GS)
3. Special Prosecutor 4529 03 201 Head Office, A filing Third
General’s Office Finance cabinet asset
(SPG) Section (HO,
FS)
What would your Answers be?
The Fixed Assets Codes for the above are as follows:
1. MoCB-101-4531-01-DD-BG-0001
2. MoR-102-4521-02-Mkl-GS-0015
3. SPG-201-4529-03-HO-FS-0003
4.7.5 When should Fixed Assets be Given PIN?

a) The ICC Activity
 The FAR and the UC must be opened immediately after completion

and reporting of the ICC activity.
 Then the size of the consecutive (PIN) numbers (fields) to be
assigned must be determined.
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 PIN should thereafter be given to the fixed assets on a continuing
basis.
b) The Normal Routine Activity
Those assets that are in the store including those in the Used Fixed Assets store
and those which are acquired subsequently must be given the PIN ONLY when
they are issued.
4.7.6 Marking or Tagging of Fixed Assets

Control over the custody of fixed assets is only complete when PIN is marked on
the assets.
The marking/ tagging on the Fixed Assets must be neat and good looking like
beautiful paintings and must not spoil the assets. In the case of animals, ear tags
could be used.
4.8 The Annual Physical Count And Summary Schedule

4.8.1 Annual Physical Count
Annual physical count of Fixed Assets and verification against the records
maintained for them is a requirement of Article 61(5) of the Council of Ministers
Regulations No. 17/1997which state that count and verification should be
conducted “… at least annually.”
The count procedures are more or less similar to the ICC except that the ICC is
concerned with the first initial complete count for establishing fixed assets
management system.
4.8.2 Annual Summary Schedule (ASS)

The ASS is the basic communication document between the FAMU and the
Finance Department of the PB. At the end of each year, on completion of the
physical count and all reconciliation and updating work of the UC and FAR, the
final job of the FMAU shall be preparation of the ASS.
The following are the steps are followed in the preparation of the ASS:
a) Updating all UCs and FARs based on the result of the physical count.
b) Calculating depreciation for the year and recording onto each FAR.
c) Updating accumulated deprecation and establishing the book value of
each asset on the FAR.
d) Preparing summary of assets under each asset category.
e) Sending a copy of the ASS to the Finance Department of the PB.
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GROUP WORK
1. What types of records are to be maintained for fixed assets in stores and
with users/ user departments? Is this different from what is done in your
PB? How?
2. What do you understand by Property Identification Number (PIN)? Explain

the components of the PIN. How is PIN given in your PB currently? What do
you think would be the main difference between what you know and the new
PIN?
3. Explain the particulars contained in the forms for UC, FAR and ASS. What
are the differences among these three forms? Were there user cards and
fixed assets register in your PB? Are they different from the FAR? How?
4. You have been provided with the following simplified data/ information:
Make Fixed
or sub asset/
Source group User Fixed Model
of Type of of Qtty. Id asset Department/ User No. Date Cost
budget Asset assets Pcs. No. No. Section Name Birr
101 Motor 01 1 02010 2010 GS Ato 10125 15.1.99 50,000
vehicle Teshale
Melkam
102 Computer 02 1 00001 0001 BG Ato 09501 10.11.98 20,000
Bekele each
Susay
203 Photocopier 03 1 00001 0001 FD. W/o 09615 15.11.98 15,000
Abeba
Getu
204 Typewriter 04 1 00001 0001 BG W/t. 09700 25.11.98 3,000
Makeda each
Teshale
205 Chair 05 1 00001 0001 BG Ato Abe 10051 15.12.98 500
Yihun each
206 Carpet 06 1 00001 0001 FD. Ato 10100 25.12.98 2,500
Getchew
Abegaz
Instruction: Using the forms provided:

1. Give complete PIN to the assets.
2. Record the PIN in the PIN Registration Form.
3. Record the above data/ information in the UCs and FARs;
4. Prepare the Annual Summary Schedule (ASS).
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5 SESSION V - VALUATION OF FIXED ASSETS

o The ICC activity - Valuation of fixed Assets in Use in general;

o Determination of cost by reference to acquisition documents;
and,
o Determination by valuation using experts and supplier
information;
o Valuation of:
 Motor vehicles and machinery using formula and factors;
 Boats using tables and supplier information;
o Plant and machinery, fittings and fixtures and office equipment;
and,
o Buildings and infrastructures.
o Valuation of New Fixed Assets; and,
o Documentation.
5.1 Valuation Of Fixed Assets

The valuation activity of fixed assets maybe divided into what is to be done
immediately after the first ICC activity and what ensues subsequently as the
normal and regular activity. Both activities must eventually culminate in the
determination of the cost/ valuation of the Fixed Assets in accordance with Article
61 (6) of the Council of Ministers Financial Regulations No 17/1997, which
provides that “where the actual cost of public property is not determinable, its cost
shall be estimated in accordance with the directives from the Minister of Finance.”
5.2 The ICC Activity – Valuation Of Fixed Assets In Use

The aim of the ICC activity as explained earlier is not only the physical verification
of existence, record keeping and tagging of the Fixed Assets. It also includes the
determination of the cost or valuation.
Cost or valuation can be determined by:
i) Tracing the original documents that show the cost, if that is possible;
or
ii) Fixing the valuation based on the Valuation Committee’s decisions.
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The possible sources for determining the valuations according to the grouping of
the assets could also be as follows:
Account
ASSET CATEGORY Code Possible Source for Valuation
Vehicle and other vehicular 4521 Purchase documents, if obtainable. If not,
transport Suppliers, Road Transport Authority,
Ethiopian Roads Authority could help.
Aircraft, boats, etc. 4522 Purchase documents, if obtainable. If not,
Plant and machinery 4523 Suppliers, the Industrial Projects Service, the
Ministry of Defense, the Federal Police
Commission and Marine Transport Authority,
and Ethiopian Shipping Lines could help. If
the Plant and Machinery are of a type that is
used by Public Enterprises, then these
bodies could be approached for help.
Military equipment 4524 Purchase documents, if obtainable. If not, the
Ministry of Defense and the Federal Police
Commission could help.
Buildings – residential 4525 Construction and payment documents, if
Buildings – non residential 4526 obtainable. If not, the Contractors, the
Infrastructure 4527 Ministry of Infrastructure, Ethiopian Building
Military purpose buildings 4528 Design Enterprise could help.
Furnishings and fixtures 4529 Purchase invoices, where obtainable. If not,
Livestock and transport 4530 Current market values by reference to current
animals purchase documents, Suppliers.
Office equipment 4531
5.2.1 Valuation Of Motor Vehicles And Certain

Machinery
If the cost documents cannot be found, other source for valuation information for
certain categories of assets such as Motor Vehicles and Machinery could be the
“Guideline to dispose of vehicles and machinery, Megabit 1989, Addis Ababa”
issued by the Federal Democratic Republic of Ethiopia, Office of the Prime
Minister. Although the guideline was issued to deal with the disposal of vehicles
and machineries, it is our view that it is a very good guide to establish values for
Government Owned Fixed Assets too where their values could not be obtained
otherwise.
Accordingly, the cost of a vehicle or machinery could be calculated using the

following formula:
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Co=AxRxYxMkxCtxMdxC
Where:
Co = cost of a vehicle or machinery
A = adjustment factor for cost (value between 0.2-0.5 is given)
R = replacement cost of a similar asset. This is the current value of the
asset and can be found from the suppliers.
Y = Year factor with reference to the year of service
Mk =Make of the vehicle or machinery and demand for the make in the
market
Ct = Country of origin
Md = Model of the vehicle or the machinery
C = Condition of the vehicle
Tables of factors and other information for each of the above (A, R, Y, Mk, Ct, Md
and C) have been given in the Guidelines which has already been referred to in
the GOFAMM Manual.
Illustration:
1. MoFED has a Toyota Station Wagon obtained by transfer from one of the
restructured institutions. The car was made in Japan and was purchased in
1990. The car is still operating and is in good condition. According to
information gathered from MOENCO, a similar new brand car currently
costs about Birr 600,000.
Instruction: Calculate the cost or valuation of the Motor Vehicle using the given
formula.
Answer One:
A summary of the data given above is as follows:
A = Let’s take the highest value of 0.5.
R = Birr 600,000.
Y = 16 (ie. 2006 less 1990), factor is 0.28.
Mk = Station Wagen, 1.10.
Ct = Japan, 1.0.
Md = Toyota, 1.15.
C = Good, 0.7.
The estimated cost of the Motor Vehicle using the formula will be as follows:
FORMULA: Co=AxRxYxMkxCtxMdxC
Estimated Cost of the Vehicle: Birr 74,382 =0.5x600, 000x0.28x1.1x1x1.15x0.7

2. A Tractor purchased from Nazareth Tractor factory by Ministry of Agriculture
&
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Rural Development in the year 2000 is without value. The tractor is not
operating because major parts were missing. The Engineer in the Valuation
Committee ascertains that NATFA is similar to ITM. New NATFA costs Birr
200,000.
Answer Two:
A summary of the data given above is as follows:
A = Let’s take the highest value of 0.2.

R = Birr 200,000.
Y = 6 (ie. 2006 less 2000), factor is 0.350.
Mk = NATFA (ITM), 0.90.
Ct = Ethiopia (Others), 0.80.
Md = Tractor (IMT), 0.85.
C = Incomplete, non-operating, 0.3.
The estimated cost of the Tractor using the formula will be as follows:
FORMULA: Co=AxRxYxMkxCtxMdxC
Estimated Cost of the Tractor: Birr 2,570 =0.2x200,000x0.35x0.9x0.8x0.85x0.3
The following Tables of factors are given as Annex at the end of this Module:
Table Particulars
A Year (Y) factor
B Make (Mk) of the Vehicle factor
C Country of origin (Ct) factor
D (1) Model (Md) of the Vehicle or Machinery factor
E Condition (C) of the Vehicle or Machinery factor
The valuation committee decides on the factors and calculates the estimated value
of the Vehicle or Machinery. If the vehicle or machinery name is not mentioned in
the tables, the Committee with the help of a technical person (a member of the
Committee) shall select the most similar item for that and complete the valuation.
5.2.2 Valuation of Boats
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If the cost documents cannot be obtained, then the cost of similar boats can be
requested from suppliers and discounted taking account of the age and the
condition of that specific boat. A rough guide for valuation based solely on the age
and condition of the Boat could be as follows (factors taken from table for Vehicles
and machineries valuation):
C= Condition of the Boat

No Factor
1 Operating boat 0.7-0.8
2 Non-operating but with all major components &
major parts 0.5-0.6
3 Non-operating with incomplete major parts
(based on the level of incompleteness) 0.3-0.49
4 Non-operating with major components missing
(based on the level of incompleteness) 0.05-0.29
Illustration – Valuation of A Boat

A Boat, which is properly functioning, has no value attached to it and the
documents of purchase could not be traced. On enquiry, the current market price
of a similar boat is Birr 150,000. Using the factors given above, the value of the
boat would be Birr 105,000 (150,000x0.7).
5.2.3 Valuation of Plant and Machinery, Furnishings

and Fixtures, and Office Equipment
The valuation of Plant and machinery; Office furniture and fixtures and, Office
equipment could be determined by:
a. Tracing the purchase documents, if that is possible; or,
b. Requesting price quotations from suppliers of similar goods, if that
is possible; or,
c. Using the services of the Valuation Committee and engaging
professionals or organizations.
The prices obtained could be discounted using discount factors to reflect the
current values.
Examples of Discount Factors
5.2.3.1 For valuation of Office Furniture and Fixtures;

and Office Equipment based on condition or
condition of the assets:
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a) Condition of the assets:
Discount from current

Condition of asset market value
Good condition: 25%
Fair condition: 50%
Poor condition: 75%
Damaged condition, non-operable Return it to store
b) Year of service (age) of the assets:

Year of service market value
1 year 10%
2 years 20%
3 years 30%
4 years 40%
5 years 50%
6 years 60%
7 years 70%
8 years 80%
9 years 90%
10 years Birr 10
Damaged – non-operable Return it to store
5.2.3.2 For valuation of Plant and machinery

The following discounting factors based on depreciation rates of 16% for the first
year of service and 12% per annum for subsequent years [Ref.: Income Tax
Regulations of 1962 (Repealed)] can also be used where the purchase documents
cannot be obtained:

Year of service market value
1 year 16%
2 years 28%
3 years 40%
4 years 52%
5 years 64%
6 years 76%
7 years 88%
8 years Birr 10
Damaged – non-operable Return it to store
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5.2.4 Valuation Of Buildings – Residential And Non-

Residential And Infrastructures
If the original documents for cost are not traceable then the next option is to use
the services of professionals to value the assets.
If the valuation does not reflect the current state of affairs, then it could be
discounted at the depreciation rate of %5 pa straight line [Ref.: Income Tax
Regulations of 1962 (Repealed) and New Income Tax Law]. The Table for
discount rates is give as Annex.
All PBs or the Valuation Committee should collect the valuation documents and
keep them safely for future reference. The Committee should write reports at the
end of the valuation exercise to GPAD and copies must be kept with the FAMU.
5.3 Valuation of New Fixed Assets

5.3.1 Fixed assets acquired through purchase or
construction
Valuation of purchased or constructed new fixed assets should not pose
difficulties henceforth. The valuation should be at cost.
4.1.2.1.1 Example – Cost Of An Asset
MoFED purchased a Motor Vehicle from MOENCO. The vehicle is delivered at the
MOENCO store in Addis Ababa. The cost of the vehicle was Birr 500,000. VAT of
Birr 75,000 was paid in addition. 2% or Birr 11,500 for title transfer was paid. In
addition Roof Rack and Tape-recorder were bought for Birr 5,000. The total cost of
the vehicle that should be accumulated and entered in the Model 19 is Birr 591,
500 and used for later issue through Model 22 is as follows.
Birr
Cost of vehicle 500,000
VAT on it 75,000
2% paid for title transfer 11,500
Cost of tape and roof rack 5,000
591,500
5.3.2 Fixed assets acquired through donation or other

means
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Assets obtained through donation shall be valued at the prices obtained from
the donors (if possible). Otherwise, they must be valued by professionals.
Assets secured through other means such as in tax settlement shall be valued
at the tax amount due plus related legal and other costs; assets secured
through confiscation and abandoned properties must be valued by
professionals.
5.3.3 Fixed assets under construction

The cost of fixed asset constructed is the total cost incurred from the initial
preparation work up to its completion.
The cost must be accumulated by the Finance Departments and communicated
to the store to be used for receiving and issuing and for later recording in the
FAR.
When new construction is started, Finance Departments must be advised to
open a separate ledger account to accumulate all costs until completion.
When the construction is completed and the FAMU is requested to takeover,
the Finance Department should supply the total cost for inclusion in the FAR.
5.4 Documentation
The receiving section of the store should obtain and keep copies of all supporting
documents such as suppliers’ invoices, receipts for payments made, gift
certificates, valuation given by Valuation Committee and so on. Copies should then
be given to the FAMU when the assets are issued.
GROUP WORK
1. What do you understand by the term valuation? How are the
valuations of the following types of acquisitions of fixed assets
determined?
S. Type of
No. Fixed Asset Acquisition
1 Office building Constructed by the PB: contracts, work certificates,
payment documents, certificates of acceptances and
the like are available.
2 Building Tax case: foreclosure and eventual takeover by the
Tax authorities in settlement of taxation case.
3 Motor vehicles Through Government agreement with a donor: the
Motor vehicles were purchased from local suppliers
for a project and the project is wound up.
4 Computers Under bilateral Government agreement for a study:
the study is accomplished, but the documents for the
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computers could not be traced.
5 Buildings Owners have abandoned them. It is expected that
there will not be any claim forthcoming. No one
knows about their costs.
6 Engineering equipment The contractors have donated them to the PB free of
in good working any charge.
conditions
2. Work out the following valuation exercises using the given formula
and the factor tables:
S. Type of
No. Asset A R Y Mk Ct Md C
1 Land 0.3 100,000 2000 Station GB LR Good
Rover (LR) wagon
2 Mercedes 0.4 125,000 1999 Automobile Germany Automobile Good
automobile
3 Toyota 0.5 90,000 2001 Automobile Japan Automobile Good
automobile
4 Generator 0.2 100,000 1998 Generator Italy 0.8 Good
5 Lorry 0.3 100,000 1998 Lorry Italy Fiat/IVECO 0.5
3. How much is the cost of the following imported heavy duty

equipment:
Birr
Suppliers quoted price (CIF to Djibouti) 1,000,000
Payments effected to the supplier:
- first payment 200,000
- second payment 250,000
- third and final payment with price adjustment 600,000
- Bank charges 6,000
Other costs:
- Inland transport 50,000
- Customs duties including VAT 250,000
The supplier covered the VAT amount 50,000
- Clearing and other charges 20,000
- Installation and commissioning charges 100,000
The equipment remained idle for 6 months without good
reason – various costs incurred during this period 50,000
4. Have you been involved in valuation committee so far? In what

capacity? How the methods described here differ from what you
know?
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5. Do you know valuation done in your PB? For what purpose was, the
valuation done and what were the methods used to do the valuation?
6. What difficulties do you expect in the valuation process? Suggest

solutions for each of the difficulties you identified.
6 SESSION VI - THE REGISTER MAINTENANCE

PROCESS, FIXED ASSETS RECORDS
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Register maintenance process
Newly received fixed assets:
Fixed assets in stores (Receiving - Model 19); and,
Fixed assets with users/ user departments (Issuing - Model 22).
Fixed Assets Management Unit’s activities:
Tagging Fixed assets with users/ user departments (Base Model 22);
Maintaining Fixed Assets Records: UCs and FARs; and,
Delivery to Users/ User Departments.
Fixed Assets Transfers On completion of Fixed Assets under Construction; and,
Fixed Assets transfers between/ among Users.
Fixed Assets Returned to Stores.
6.1 Register Maintenance

The Register maintenance process has already started when the ICC activities
were accomplished. This Session is a continuation of that process (See Session
Four).
6.1.1 Newly received fixed assets
6.1.2 Fixed Assets in Stores:

Fixed assets received by the stores are stock items as long as they remain in
the hands of the stores.
On receipt of the assets, the storekeeper acknowledges receipt through

Receipt of Articles of Property Received form (Model 19). The form currently in
use is sufficient for the purpose. But the number of copies shall be increased
from three to four and the distribution shall be as follows:
Original & copies Distribution

Original - To Finance Department to be attached with the
Payment Voucher
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Second copy - To the person or entity who delivered the items.
Third copy - To the FAMU of the PB.
Fourth copy - Remains in the Pad.
FAMU shall keep the history of the assets. The stores should receive copies of all
documents like the suppliers’ invoices, the contract, the packing list, tax
declarations, which must be attached with the third copy of the Model 19. The
supporting documents shall be filed in box files in the FAMU initially based on
Model 19 for information purposes, and later when the assets are issued by the
stores to Users or User Departments against issue voucher, Model 22.
6.1.3 Fixed Assets with Users or User Departments –

New Issues
The Receipt for Articles of Property Issued, Model 22 in use is sufficient for the
present purpose. The numbers of copies must, however, be increased from
three to four similar to Model 19 and the distribution is as follows:
Original & copies Distribution

Original - To MoFED Property Administration Division.
Second copy - To Finance Department of the PB.
Third copy - To the FAMU of the PB.
Fourth copy - Remains in the Pad
One leaf of Model 22 must be used to issue one or more fixed assets to only one
custodian. As soon as the third copy of issue voucher is received, the FAMU:
i. Identifies the appropriate category of the fixed asset in accordance with the
Chart of Accounts: If the items are unique and were not covered by the existing
categories, GPAD and CAD must be consulted.
ii. Maintains and assigns PINs: PIN register must be maintained indicating the last
number used so that the same PIN is not given to different assets or PINs are
not skipped. PINs assigned should be marked of.
iii. Registers on the UC – The UC is the complete record of assets in the hands of
Users both for fixed assets above the threshold and asset below the threshold
but with permanent nature.
iv. Registers items with values above the minimum amount on the FAR: Only
those assets that clearly satisfy the definition of fixed assets are registered in
the FAR.
v. Prints PINs on the fixed assets: Ensures that PINs are printed before the assets
are issued to Users.
vi. Issues fixed assets to the user. Ensures that the fixed assets are issued to the
User only when the above tasks are completed.
All the above tasks require coordination with the stores since the assets are first
received by the stores and then issued to Users or User Departments.
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6.1.4 Fixed Assets with Users or User Departments –

Transfer from construction in progress to fixed
assets proper
During the ICC, the FAMU has maintained summarized Fixed Assets Under
Construction Summary Table (FAUCST). When the constructions are competed
and the FAMU is requested to receive, the accumulated cost information is
requested from the Finance Department of the PB. Like any other asset, the
constructed asset is registered in the UC and the FAR. The UC is opened in the
name of the responsible department to keep such assets; usually the custodians
are the “General Services Section” or “Premises and Offices” section.
When assets are constructed for the first time, the FAMU shall include such asset
in the FAUCST. No registration is done in the UC and FAR until the construction is
completed and the FAMU acknowledges receipt and then transfers the assets to
Users or User Departments.
The history of the asset is kept with the FAMU in a file opened for each such asset
which includes the construction contract, correspondence to and from FAMU and
others, temporary and final acceptance letter, copy of the letters sent to/ received
from the Finance Department on accumulated cost information.
6.1.5 Fixed Assets with Users or User Departments -

Transfer between custodians
Assets might be transferred from one custodian to the other without physically
returning the asset to the store. When this happens, the procedures given in the
GOFAMM shall be followed.
6.1.6 Return of used fixed assets to stores

When Fixed Assets are returned to stores, then those assets will be out of the
Fixed Assets Management system and will fall under Stores Management System.
When Fixed Assets are returned to Used Fixed Assets Store, a voucher called
Receipt for Articles of Property Returned (RAPR) must be used. When this
happens, the procedures given in the GOFAMM shall be followed.
GROUP WORK
1. What are the differences between fixed assets in stores and fixed assets
with users considering the nature, condition and types of assets? What do
you understand about Used Fixed Assets and Scrapped Fixed Assets?
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2. In your PB, what types of records are maintained for fixed assets in stores
and those with users/ user departments? Who is (are) responsible for
keeping these records and why? How is this different from what is explained
in the new manual?
3. What are the duties and responsibilities of the Fixed Assets Management
Unit (FAMU)? Which section is the doing similar job in your PB? What are
the main differences in the duties and responsibilities of the two?
4. What do you understand by ‘Fixed Assets Under Construction Summary

Table (FAUCST)’? What information does it contain and for what purpose?
Is there such record in you PB? Who keeps the records?
5. What forms are used to transfer fixed assets under construction (which are
now completed) to fixed assets proper? Compare this with your current
practice in your respective PB.
6. Fixed Assets which were under construction during the ICC activity have
now been completed and the FAMU has been advised to take charge of
them as of Meskerem 30, 1999 and the hand over is in progress. What
steps must FAMU take in order to be able to receive the assets?
46
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7 SESSION VII - ACCOUNTING TREATMENT OF

COST/VALAUATION OF FIXED ASSETS
On completion of this Ses sion,

 That recording the cost/ valuation of Fixed Assets is a legal Requirement.

 The Accounting bases:
 The Cash Basis of Accounting;
 The Modified Cash or the Modified Accrual Basis of Accounting; and,
 The Accrual Basis of Accounting.
 Accounting treatment of Fixed Assets under:
 The Modified Cash Basis of Accounting system; and,
 The Accrual Basis of Accounting system.
 The Transitional Arrangement concerning treatment of fixed assets:
 Memorandum Accounts for fixed assets.
7.1 Recording the cost/ valuation of Fixed Assets

 A legal requirement
In accordance with Article 61(7) of The Council of Ministers Financial Regulations
No 17/1997, the “…cost of fixed assets shall be included in the Public Accounts in
accordance with directives of the Minister of Finance.”
The ICC activity of gathering the cost/ valuation of Government Owned Fixed
Assets and the subsequent fixed assets capitalization as a whole and charging of
depreciation is done in conformity with the requirements of the above Regulations.
1 Accounting Bases
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There are three accounting bases. These are:
 The Cash Basis of Accounting;
 The Modified Basis of Accounting; and,
 The Accrual Basis of Accounting.
7.2 The Cash Basis of Accounting

The Cash Basis is concerned only with cash transactions. Under this system
income or revenue is recognized when received or collected and expenditures
when paid. The financial statement produced under this system is the Statement of
Cash Receipts and Payments.
7.3 The Modified Cash Basis of Accounting

The Modified Cash Basis Accounting which is also referred to as the Modified
Accrual Basis of Accounting is only slightly different from the Cash Basis. Under
this system revenue or income is recognized when collected and expenditures
when incurred. Any unpaid obligations for services or commodities received before
close of the fiscal year are taken account of in the year’s accounts.
The Government of Ethiopia is presently using the Modified Cash Basis of
accounting system. This system does not provide for accounting for fixed assets.
Under this system, the payments for fixed assets are treated as expenses. No
recognition is also given to donated or otherwise acquired fixed assets.
Example: Treatment of Fixed Assets under the Modified

Cash Basis
Assume that MoFED acquired five computers for Birr 100,000 cash from AZE
Computer Providers PLC.
The recording, as it is presently done under the Modified Cash basis, is as follows
(Note: Account group No. 6300 is used):
Account Description Code Debit Credit

Computers (Expenditure/ Expenses) 6313 100,000
Cash 4101 100,000
7.4 The Accrual Basis of Accounting
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The Accrual Basis of Accounting is the better of the two systems which reflects a
true and fair view of the financial position and results or otherwise of operation of
organizations. Under this system income or revenue is recognized when earned
and expenditures when incurred. Assets such as fixed assets and inventories are
capitalized. Deprecation calculated on the fixed assets and consumption of
inventories are treated as expenses.
The cost/ valuation of fixed assets will be capitalized in the accounts of the
Government of Ethiopia when the accrual basis of accounting system is adopted.
Example: Treatment of Fixed Assets under the Accrual

Basis
Take the example given earlier. Consider depreciation charge at 10% pa. on the
cost for the year.
a) The accounting treatment will be as follows:

Computers (Fixed asset) 4531 100,000
Cash 4101 100,000
b) The depreciation expense will be as follows:

Depreciation 6313 10,000
Accumulated depreciation Computer 4531-1 10,000
7.5 Transitional Arrangement for the Treatment of Fixed

Assets
 Maintenance of Memorandum Accounts and Reporting
Until the full-fledged accrual system is employed, the financial statements will not
reflect the cost/ valuation of fixed assets and related depreciation. In order to
prepare the ground for the capitalization and depreciation of fixed assets in the
accounts, a transitional arrangement which is partly based on the concept
incorporated in the FGE Accounting System Manual 3, Volume III, Accounting for
Other Assets and Liabilities is proposed.
The concept of the transitional arrangement is to append the cost of fixed assets
and related depreciation in the financial statements on a memorandum basis
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without disturbing the current budgetary accounting system in use. The information
will then be useful for internal and external users of the financial statements.
The transitional arrangement works along side the existing system. Therefore, it
shall not create the impression that the present system is changed.
The first of all transactions concerns incorporating the results of the ICC activity.
The values determined by the Valuation Committee and presented according to
the Chart of Accounts grouping as approved will be the first entries to be recorded
in the Memorandum accounts. Thereafter, the entries that will be recorded follow
the normal operations of the PBs. Assets without values will have to be valued and
incorporated as well.
The Finance Department of each PB opens ledger accounts for cost/ valuation,
related depreciation and fixed assets fund and contra accounts. Other necessary
accounts may also be opened. (NB: These Ledgers are not a part of the
accounting system for the time being.) The following Chart of Account extracts for
the Memorandum Accounts are given as Annex at the end of this Module.
Reference Particulars
A Chart of Accounts for Fixed Assets – Cost/ Valuation
(Memorandum) (Account Code Numbers 4521 - 4531)
B Chart of Accounts for Fixed Assets – Accumulated Depreciation
(Memorandum) (Account Code Numbers 4521.1 – 4531.1)
C Chart of Accounts for Fixed Assets Fund (Memorandum) (Account
Code Numbers 5721 – 5731)
D Chart of Accounts for fixed assets contra (Sub accounts for Fixed
Assets Fund Accounts) (Account Code Numbers 5721.1 – 5731.1)
Nature of the Memorandum Accounts

Account Description Account No. Debit Credit
Fixed asset 4520 to 4531 Increases Decreases

Accumulated deprecation 4520-1 to 4531-1 Decreases Increases
Fixed assets fund 5720 to 5731 Decreases Increases
Fixed assets fund contra 5720-1to5720-1 Increases Decreases
When fixed assets are recognized on a Memorandum

basis, the following entry will be made:
Fixed asset Increases

Fixed assets fund Increases
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When depreciation is charged, the entry will be as

follows:
Fixed assets fund contra Increases

Accumulated deprecation Increases
The above process enables the cost or valuation of fixed assets to be included in
the financial statements for disclosure purposes. The effect of the accounting
process on the financial statements is zero but the information is reflected.
Example – Recording the Cost of Fixed Assets

The Ministry of Education purchased a vehicle with a total cost of Birr 300,000.
The payment was made by check drawn on the Bank account of the PB.
Recording under the Modified Cash Basis Accounting

1. The normal accounting entry is as follows:
Account Description Account No Debit Credit

Vehicle & other vehicular transport 6311 300,000
Bank 4102 300,000
Recording the Memorandum Account

2. The entry to be recorded on a memorandum basis will be as follows:
Account Description Account No Debit Credit

Fixed asset 4521 300,000
Fixed assets fund 5721 300,000
In the above entry, the cost of fixed assets has increased with a corresponding
increase in the fixed asset fund. If all fixed assets are so recorded, then the total
amount invested in fixed assets will be eventually reflected in the financial
statements making it more informative.
Recording when fixed assets are returned to store

1. To remove the cost or valuation of the fixed asset
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Fixed assets fund Decreases
Fixed asset Decreases
2. To remove the accumulated depreciation:

Accumulated deprecation Decreases
Fixed assets fund contra Decreases
7.6 Fixed assets under construction

Fixed assets under construction are fixed assets pending completion. Even
though they are not captured as such under the Modified Cash Basis
Accounting system, the costs incurred should be accumulated by the Finance
Department in ledgers.
The Chart of Accounts Code Numbers (Memorandum Accounts) to be used by

Finance Department for cost accumulation and contra fixed assets fund
accounts shall be 4501-4504 for the costs, 5801-5804 for related fund
accounts. The Chart of Accounts extracts are given as Annex at end of this
Module.
Reference Particulars
A Chart of Accounts for Fixed Assets – Constructions in Progress -
Cost/ Valuation (Memorandum) (Account Code Numbers 4501 -
4504)
B Chart of Accounts for Fixed Assets – Constructions in Progress
Fund (Memorandum) (Account Code Numbers 5801 – 5804)
The nature of the above memorandum accounts is as follows:
Account Description Account Number Debit Credit
Fixed asset under construction 4501 to 4504 Increases Decreases

Fixed asset under construction fund 5801 to 5804 Decreases Increases
When payment for construction is made, two entries will be passed - one a normal
entry and the other an additional Memorandum entry.
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7.7 The ICC activity - Fixed assets in use
On completion of the ICC and the fixed assets valuation is done, the FAMU
shall prepare a summary of fixed assets with the total value for each category
of the fixed assets. (NB: As much as possible all fixed assets should be given
value but this summary shall be done even if all assets are not given values.)
1. The summary to be maintained on the computer on Microsoft Excel (See
Table below with Example of data filled therein) shall at least contain the
following information:
a. Description (name) of the asset
b. PIN number
c. Date of issuance
d. Cost of asset
e. Accumulated depreciation
f. Current year depreciation
g. Book value
Accumul Current
ated year Total
Description (name) of Date of depreciat depreciatio Depreciat NET
No the asset PIN number issuance Cost ion n ion Book value
1 Toyota Station wagon GOV-MoFED-4521-HO-FD-0001 6/6/1990 300,000 0 300,000
2 Motor Cycle GOV-MoFED-4521-HO-FD-0002 6/7/1990 30,000 0 30,000
3 Mitshibusi GOV-MoFED-4521-HO-FD-0003 6/8/1990 250,000 0 250,000
4 Niva GOV-MoFED-4521-HO-FD-0004 6/9/1991 150,000 0 150,000
5 Toyota Corrola GOV-MoFED-4521-HO-FD-0005 6/10/1991 180,000 0 180,000
6 Hyudi GOV-MoFED-4521-HO-FD-0006 6/11/1991 140,000 0 140,000
7 Landrover GOV-MoFED-4521-HO-FD-0007 7/2/1993 400,000 0 400,000
8 FIAT GOV-MoFED-4521-HO-FD-0008 7/3/1993 700,000 0 700,000
9 Lada GOV-MoFED-4521-HO-FD-0009 7/4/1993 45,000 0 45,000
10 Kamaze GOV-MoFED-4521-HO-FD-0010 7/5/1993 650,000 0 650,000
Grand Total 2,845,000 - - - 2,845,000
2. The total summary gives the total cost/ valuation of the assets in the
category (Birr 2,845,000 in the above Table, for instance), the total
accumulated deprecation and the net book value (Birr 2,845,000 in the
above Example). (There will not be information on deprecation at this stage.
Once this initial registration is complete, then depreciation shall be
calculated annually.)
3. The totals are transferred to another summary as shown hereunder. This

summary shall be duly checked and approved by the Head of the FAMU. A
copy shall be sent to the Finance Department as a source document to
incorporate the value of the fixed assets in the accounting records on a
Memorandum basis to start with.
PUBLIC BODY: _________________
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SUMMARY OF FIXED ASSETS
DATE: Hidar 26, 1999 EC
CATEGORY ACCOUNT CODE Birr
Vehicle and other vehicular transport 4521 2,845,000

Aircraft, boats, etc. 4522
Plant and machinery 4523
Military equipment 4524
Buildings – residential 4525
Buildings – non residential 4526
Infrastructure 4527
Military purpose buildings 4528
Furnishings and fixtures 4529
Livestock and transport animals 4530
Office equipments 4531 _______-
Grand total XXXXXXX
To: Finance Department

From: FAMU
The FAMU of the ____________________ Public Body has finalized the Initial
Comprehensive Count (ICC) of the fixed assets under its custody. It has
maintained the Users Cards (UC) and the Fixed Assets Registration Cards (FAR).
It has assigned PIN to all the fixed assets. It has attached value for all/most fixed
assets. This is therefore to advise you to incorporate the values of the fixed asset
in the accounting records.
Name of head of FAMU Signature Date
4. On receiving the above summary, the Finance Department prepares a

Journal Voucher to recognize the entries. The Journal Voucher to be used
to record the cost of fixed assets is the one that is used in the Modified
Cash Basis of accounting system. No amendment is needed on the format.
7.8 The ICC activity - Fixed assets Under Construction
7.8.1 Initial Entries of Constructions in Progress

When the ICC activity was progressing one of the activities was compiling the
constructions in progress. The information regarding these assets was
summarized on Fixed Assets Under Construction Summary Table (FAUCST).
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Based on this information Memorandum entries would be passed by the Finance
Department of each PB at the end of the year on the advice of FAMU.
Example One
Assume the ICC activity has been completed and according to information
compiled by the Valuation Committee as approved by FAMU, the costs of
Constructions in Progress as at Meskerem 30, 1999 were as follows:
Chart of Amount
Construction in Account % age Works
No. Public Body progress type code completed Contract done
1 M. of Ed Office Building 4502 25 1,000,000 250,000
2 M. of Rev Office Building 4502 50 1,500,000 500,000
3 M. of CB Library Building 4502 70 2,000,000 1,400,000
4 MoFED Stores Building 4502 60 750,000 450,000
5 M. of Residential 4504 75 1,000,000 750,000
Defense Building
Total 6,250,000 3,350,000
Instructions:
i) Explain the types of accounts to be maintained.
ii) Record the above amounts in the appropriate General Leger Memo
Accounts.
Answers:
i) The types of accounts are all Memorandum Accounts.
ii) The entries to record the transactions under ICC activity (Example (a)
above) would be as follows:
Account
Account Description Number Debit Credit
Construction in progress, Buildings – non
residential – Ministry of Education 4502 250,000
residential – Ministry of Revenue 4502 500,000
residential – Ministry of Capacity Building 4502 1,400,000
residential – Ministry of Finance and Economic
Development 4502 450,000
Construction in progress, Buildings – residential
– Ministry of Defense 4504 750,000
Fixed Assets Fund - Construction in progress,
Buildings – non residential – Ministry of
Education 5802 250,000
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Buildings – non residential – Ministry of
Revenue 5802 500,000
Buildings – non residential – Ministry of Capacity
Building 5802 1,400,000
Buildings – non residential – Ministry of Finance
and Economic Development 5802 450,000
Buildings – residential – Ministry of Defense 5804 750,000
Total 3,350,000 3,350,000
7.8.2 Normal Activity - Constructions in Progress

completed
The Constructions that were in progress when the ICC activity commenced have now been
completed at the total contract amounts of Birr 6,250,000. This sum, as accumulated and
reported by the FDs of each PB, is summarized as follows:
Works done
Construction in Account Contract At ICC Additional Total at
No. Public Body progress type codes Amount Season Payments completion
1 M. of Ed Office Building 4502 1,000,000 250,000 750,000 1,000,000
2 M. of Rev Office Building 4502 1,500,000 500,000 1,000,000 1,500,000
3 M. of CB Library Building 4502 2,000,000 1,400,000 600,000 2,000,000
4 MoFED Stores Building 4502 750,000 450,000 300,000 750,000
5 M. of Residential 4504 1,000,000 750,000 250,000 1,000,000
Defense Building
Total 6,250,000 3,350,000 2,900,000 6,250,000
First, initial entries of Birr 3,350,000 were passed by the FDs when the ICC activity
was completed under concerned Memorandum accounts.
Now the Constructions have been completed at a total cost of Birr 6,250,000 as
stated above. The costs were accumulated under Account Codes 4502 and 4504,
and 5802 and 5804 respectively. On receipt of the new information, the whole
accumulated total which includes the initial figure of Birr 3,350,000 held in the
books maintained by the FDs have to be completely reversed as shown below:
Reversals/ closing of figures accumulated by FDs
Account Debit Credit

Number
Fixed Assets Fund - Construction in progress, 5802 5,250,000
Buildings – non residential (others per details)
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Fixed Assets Fund - Construction in progress, 5804 1,000,000
Buildings – residential – Ministry of Defense
Construction in progress, Buildings – non 4502 5,250,000
residential (others per details)
Construction in progress, Buildings – 4504 1,000,000
residential – Ministry of Defense
Then, FAMU will notify the FDs what the new figures are for recording in
Memorandum accounts. The amounts are the same but the source now is FAMU.
In addition to this depreciation will also be recorded. The new entries are as
follows:
Recording in Fixed assets and Fixed assets Fund accounts:
Account
Number Debit Credit
Buildings – non residential (others per details) 4526 5,250,000
Buildings – residential – Ministry of Defense 4528 1,000,000
Fixed Assets Fund - Buildings – non
residential (others per details) 5726 5,250,000
Fixed Assets Fund - Buildings – residential
– Ministry of Defense 5728 1,000,000
Recording Depreciation:
Account Debit Credit

Number
Depreciation of Buildings – non residential 5725.1 262,500
(summarized)
Depreciation of Buildings – residential – Ministry 5726.1 50,000
of Defense
Accumulated Depreciation - Buildings – non 4525.1
residential (summarized) 262,500
Accumulated Depreciation - Buildings – 4526.1
residential – Ministry of Defense 50,000
Note: Depreciation is calculated at 5% pa on costs of Birr 5,250,000 and Birr

1,000,000, which are Birr 260,500 and Birr 50,000 respectively.
Example Two:
Assume that MoFED has signed a construction contract for the construction
of an office building for Birr 10,000,000. An advance payment of Birr
1,000,000 is made. In addition, the contractor submitted a payment request
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for additional Birr 500,000 when the construction progressed. The payment
was approved and paid.
Instructions:
i) Explain what type accounts are to be maintained for the above

transactions.
ii) Record the amounts in the appropriate General Leger Accounts.
Answers:
i) The types of accounts are two:
 Entries of normal nature as is presently practiced in each PB

including the MoFED, and,
 Parallel Memorandum Accounts as explained above with example.
(re.: construction in progress completed at a total const of Birr
6,250,000)
ii) The entries to record the transactions under the Normal activity would be
as follows:
Normal Activity: To record the advance payment

Account
Construction of Buildings – non residential 6323 1,000,000
Bank 4102 1,000,000
Normal Activity: To record the first payment

Account
Construction of Buildings – non residential 6323 500,000
Bank 4102 500,000
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Memorandum Accounts: To record the advance payment
Account No
Account Description Debit Credit
Construction in progress, Buildings – non 4502 1,000,000
residential
Construction in progress, Buildings fund – 5802 1,000,000
non residential
Memorandum Accounts: To record the first payment

Account No Debit Credit
Construction in progress, Buildings – non 4502 500,000
residential
Construction in progress, Buildings fund – 5802 500,000
non residential
Summary Information
As a result of the above entries, the financial statements will show the following for
Construction is progress, Buildings as well as the related Fixed Assets Fund of the
same amount:
Particulars Amount
- From the ICC activity 3,350,000
- From the Normal transactions 1,500,000
4,850,000
When the constructions are finalized, the accumulated cost of the fixed asset
under construction should be transferred to fixed asset account as sufficiently
explained earlier.
Completion of Construction in progress (Example given

above)
Assuming that the Building was completed at a total cost of Birr 10,000,000,
the following entries would be required to transfer the costs to fixed assets
accounts:
Reversals/ closing:
Construction of Buildings fund – non
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residential 5802 10,000,000
Construction of Buildings – non residential 4502 10,000,000
7.8.3 Recording in Fixed assets and fixed assets

Fund accounts:
The entries to record the cost of the completed building in the fixed assets and
fixed assets fund ledgers:

Buildings– non residential 4526 10,000,000
Buildings fund – non residential 5726 10,000,000
From now on depreciation can be calculated on the above assets as of the dates
of capitalization in the Memorandum Accounts. Depreciation is a topic to be
covered later on.
7.9 Close Cooperation between FAMU and FDs of PBs

The FAMU and the Finance Departments of each Public Body should work closely
in cooperation so that the procedures laid down in the GOFAMM take effect as
designed and desired, and the required data are regularly compiled and input in
the Government Accounting system initially on a Memorandum basis and
thereafter as part of the accounting system when the Accrual Basis of Accounting
is adopted.
This does not, however, rule out the need for cooperation by other departments as
and when the FAMU and the FD desire to obtain such assistances that they
require in order that they carry out their duties satisfactorily.
GROUP WORK
1. Explain why the cost/ valuation of fixed assets have to be incorporated in

the accounts. So far this was not done. What do you think was the
deficiency of not doing this?
2. As you are aware the present accounting system does not provide for
capitalization and depreciation of fixed assets. How is this process to be
achieved in the transitional phase?
3. The ICC has been accomplished and the following results were reported.
Amount
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Construction in Chart of Total
No. Public Body progress type Account Contract cost/valuation
code
1 M. of Infrastructure Residential 4525 1,000,000 1,250,000
Building
2 M. of Education Office Building 4526 1,500,000 1,400,000
3 M. of CB Office Building 4526 2,000,000 2,200,000
4 MoFED Office Building 4526 750,000 750,000
5 M. of Health Residential 4525 1,000,000 950,000
Building
Instructions: (note that each member of the group has to do this individually and
then discuss it in a group. Then prepare the answer of the group)
i) Record the above amounts in the appropriate General Leger Memo Accounts.
ii) Explain the type’s accounts you maintained.
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8 SESSION VIII - DEPRECIATION

The concept of Depreciation and depreciation funding;
The Transitional arrangement for calculating and recording depreciation;
Depreciation methods and rates;
The straight line method;
The declining balances method.
In accordance with the Income Tax Laws.
8.1 Depreciation
The definition of Depreciation has already been given in Session One. Some
understand Depreciation as a measure of value, but it is not. When a fixed asset is
fully depreciated it does not mean that it has lost all its value. A fully depreciated
asset or an asset with a nominal value could command quite a higher price in the
market. Thus, the net book value of an asset does not represent the market value.
There is a concept called Depreciation Funding. What this simply means is setting
aside from the revenue the cash equivalent to the depreciation amount and
keeping it in a sinking fund for later use.
8.2 The transitional arrangement

Under the transitional arrangement, depreciation will also be calculated and
charged on the fixed assets. If the cost/ valuation is not depreciated, then the
financial information reported in the financial statements will be distorted.
Therefore, there needs to be a way of depreciating the cost/ valuation of the
assets.
The purpose of the depreciation here is not determining the amount to be charged
to the income and expenditure account, but rather to report a fair value of the fixed
assets from time to time.
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8.3 Depreciation Methods and Rates

There are different types of depreciation methods and rates that are used to
depreciate fixed assets, which yield quite different results.
According to Article 23 of Income Tax Proclamation No. 286/2002 the depreciation

methods and rates allowed for determining taxable business income are as
follows:
Depreciation
No. Type of Asset Method % pa
1 - Fine art, antiques jewelry, … and Are not
other assets which are not subject to depreciated
wear and tear and obsolescence
2 - Costs of buildings and constructions Straight line basis 5
3 - The cost of intangible assets Straight line basis 10
4 (a) - Computers, information system, Declining balance 25
software products and data storage
equipment
4 (b) - All other business assets Declining balance 20
8.4 The Straight line method

One method of depreciation is the straight-line method. Under this system the cost/
valuation of the fixed asset less any residual or nominal value is divided equally
over the estimated useful life of the asset. In the above cases, the estimated useful
lives of Buildings and intangible assets are 20 and 10 years respectively.
Suppose the cost of a Building is Birr 1,000,000 and a nominal value of Birr 1,000
is determined, then the depreciation to be calculated at 5% pa. on Birr 999,000
would be Birr 49,950 per annum [(Birr 1,000,000 less Birr 1,000) x .05).
Article 8 of Mining Income Tax Proclamation No. 53/1993 under the heading
‘Depreciation’ also supports the straight line method and states that ‘all capital
expenditure … maybe depreciated; deprecation … for any accounting year shall be
calculated on a straight line basis over a useful life of four consecutive years.’
8.5 The Declining Balance method

The declining balance method is the other depreciation method. The depreciation
is calculated on the cost less residual or nominal value initially and thereafter after
deducting the accumulated depreciation at the beginning of each year from the
book value.
Suppose the cost of the Computer was Birr 100,000 and the residual or nominal
value was determined to be Birr 1,000, then the depreciable amount would be Birr
99,000. Depreciation for the first year at the rate of 25% pa would, therefore, be
Birr 24,750. The depreciation for the second year would then be Birr 18,562.50 (i.e.
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Birr 99,000 less Birr 24,750). For the third year the accumulated depreciation and
net book value would be Birr 43,312.50 (i.e. Birr 24,750 plus Birr 18,562.50) and
Birr 55,687.50 respectively. So the depreciation for the third year would amount to
Birr 13,921.88. And so on for subsequent years. This is not as simple as the
straight-line method.
8.6 Other Depreciation methods

There are also other methods such as the ‘sum of the years’ digits’ and the
‘Composite rate depreciation method’, the ‘Production Units method’ but we will not
be discussing these here.
9 Proposed Depreciation Method and Rates: the Straight-

line method
9.1 The Straight line Method

The depreciation system that must be employed for depreciating Government
Owned Fixed Assets must be simple.
The Straight-line method had been used in Ethiopia in the past many years. This
method was used in the Income Tax Laws to calculate depreciation for tax
purpose.
Straight-line depreciation method shall be used in calculating depreciation on all

Government Owned Fixed Assets. Use of Methods other than this shall require the
approval of GPAD.
9.2 Depreciation Rates

The following annual depreciation rates, developed on the basis of the rates that
had been widely used in Ethiopia in the past many years, shall be used.
CATEGORY DEPRECIATION RATE

Vehicle and other vehicular transport 20%
Aircraft, boats, etc. 20%
Plant and machinery 16% first year, 12% thereafter
Military equipment 20%
Buildings – residential 5%
Buildings – non residential 5%
Infrastructure 5%
Military purpose buildings 5%
Furnishings and fixtures 10%
Livestock and transport animals 20%
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Office equipment 10%
The following rules shall be applied when calculating the depreciation:

1. Depreciation shall be calculated on each and every asset, which is on the
FAR.
2. The FAMU is responsible for calculating the depreciation and posting it to
the FAR and then for communicating to the FD.
3. A full year of depreciation shall be calculated in the year for the asset
regardless of the date of acquisition.
4. No depreciation shall be calculated in the year the fixed asset is returned
to the used-stock store.
5. In the last year of depreciation of an asset, the amount of depreciation
shall be reduced by Birr 10 for nominal value to be held in FAR. A fully
depreciated asset shall have a book value of Birr 10.
Example: Depreciation using the Straight line method
1. Assume that a motor vehicle is purchased for Birr 500,000. The useful
economic life of the asset is estimated to be five years. No residual or nominal
value is considered. The annual depreciation will be:
500,000/5=100,000
At the end of the fifth year, the book value of the car becomes zero.
2. The Ministry of Infrastructure has completed the ICC and maintained FAR for
all its assets. It was noted that a printing machine was acquired at a cost of Birr
160,000 on Meskerem 1, 1999 EC. (Note: All other particulars of the Asset are
already completed on the FAR.)
Instruction: (1) - Calculate the applicable depreciation on the straight line

method until the Nominal Value of Birr 10 remains;
(2) - Record the depreciation in the FAR.
(3) - How much is the cost and annual depreciation to be
communicated to the Finance Department (FD) each year?
Answers for Instructions (1) and (2):
MINISTRY OF FINANCE & ECONOMIC DEVELOPMENT
PUBLIC BODY: Ministry of Infrastructure
FIXED ASSETS REGISTER CARD (FAR)
Description of the asset: Printing Machine

PIN: GOV-MoFED-4523-HO-GS-0069 Serial No: 0000000000234
Plate No_________________________ Engine No_________________________
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Supplier Name____________________
Date of Purchase _________________ Accounts Ref______________________
Model 19 No_____1234_____________ Date______________________________
Model 22 No_____4321_____________ Date ______________________________
Purchase cost Birr _____160’000_____
No of unit________1_______________ Unit cost_ 160,000__________________
Location: Head office – General Service Depreciation Rate: 16% 1st Year, 12% there
after
Year of Accumulated Book Value

No of Units Cost Depreciation Depreciation Depreciation Remark
1 160,000 30/10/1999 25,600 25,600 134,400
30/10/2000 19,200 44,800 115,200
30/10/2001 19,200 64,000 96,000
30/10/2002 19,200 83,200 76,800
30/10/2003 19,200 102,400 57,600
30/10/2004 19,200 121,600 38,400
30/10/2005 19,200 140,800 19,200
30/10/2006 19,190 159,990 10
Answer for Instruction (3):
Cost and Accumulated Depreciation balances at the end of each year to be

communicated to the FD using the Annual Summary Schedule (ASS) form
are those recorded in columns with headings: Cost and Depreciation above.
Thus,
Year Cost Acc.

Depreciation
1999 160,000 25,600
2000 160,000 44,800
2001 160,000 64,000
2002 160,000 83,200
2003 160,000 102,400
2004 160,000 121,600
2005 160,000 140,800
2006 160,000 159,990
That is, for year 1999, Cost Birr 160,000 and Depreciation Birr 25,600. These will
be reversed and the new information for 2000 will be Cost Birr 160,000 and
Accumulated Depreciation Birr 44,800 and so on.
1. Annual Summary Schedule (ASS) and Memorandum entries
PUBLIC BODY: XXXXXXXXXXX

ANNUAL SUMMARY SCHEDULE (ASS)
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FOR THE FISCAL YEAR ENDED
PART ONE: FIXED ASSETS

CATEGORY ACCOUNT ACCUMULATED BOOK
CODE COST DEPRECIATION VALUE
Vehicle and other vehicular transport 4521

Aircraft, boats, etc. 4522
Plant and machinery 4523 160,000 25,600 134,400
Military equipment 4524
Buildings – residential 4525
Buildings – non residential 4526
Infrastructure 4527
Military purpose buildings 4528
Furnishings and fixtures 4529
Livestock and transport animals 4530
Office equipments 4531
Grand total
PART TWO: ASSETS UNDER
CONSTRUCTION -COMPLETED
CATEGORY ACCOUNT
CODE Birr
Construction of Buildings – residential 4501
Construction of Buildings – non 4502
residential
Construction of Infrastructure 4503
Construction of Military purpose buildings 4504
To: Finance Department
From: FAMU
We have finalized the annual physical count of fixed assets. We have updated the UC and FAR.
We have calculated depreciation on each asset. The summary of the fixed assets in part one of this
form is the final cost, accumulated depreciation and book value of all assets. Please amend your
records accordingly. Indicated in part two of the form are the value of the fixed assets under
construction that are capitalized as fixed assets this year. Please amend your fixed assets under
construction account as per part two of this form.
Name of head of FAMU Signature Date
Upon receiving the ASS, the Finance Department prepares a Journal Voucher to
amend the accounting records. The following are the accounting entries required:
For Recording Reversals
Fund and Cost/ valuation Accounts (extracts only)
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Account
Description Code Debit Credit
Vehicle and other vehicular transport –fund 5721 XXXX

Vehicle and other vehicular transport 4521 XXXX
Aircraft, boats, etc. –fund 5722 XXXX
Aircraft, boats, etc. 4522 XXXX
Plant and machinery –fund 5723 XXXX
Plant and machinery 4523 XXXX
Accumulated Depreciation and Fund contra Accounts (extracts

only)
Account
Accumulated Depreciation Vehicle and other
vehicular transport 4521 XXXX
Vehicle and other vehicular transport –fund Contra 5721 XXXX
Accumulated Depreciation Aircraft, boats, etc. 4522 XXXX
Aircraft, boats, etc. –fund Contra 5722 XXXX
Accumulated Depreciation Plant and machinery 4523 XXXX
Plant and machinery –fund Contra 5723 XXXX
For Recording the New Information
Costs and related Fund Accounts (extracts only)
Account
Vehicle and other vehicular transport 4521 XXXX
Aircraft, boats, etc. 4522 XXXX
Aircraft, boats, etc. –fund 5722 XXXX
Plant and machinery 4523 XXXX
Plant and machinery –fund 5723 XXXX
Fund contra and Accumulated Depreciation Accounts (extracts

only)
Account
Contra
Accumulated Depreciation Vehicle and other 4521 XXXX
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vehicular transport
Aircraft, boats, etc. –fund Contra 5722 XXXX
Accumulated Depreciation Aircraft, boats, etc. 4522 XXXX
Plant and machinery –fund Contra 5723 XXXX
Accumulated Depreciation Plant and machinery 4523 XXXX
1. When the new cost and accumulated deprecation figures are recorded, the
accounting record is updated. The book value of assets is not separately
recorded. The book value is the difference between the cost and accumulated
depreciation figures.
2. The ASS also provides information on fixed assets under construction. The FD
accumulates the cost until completion. The FD provides the cost information to
capitalize the asset. FAMU also opens UCs and FARs. Part One of ASS
summarizes the cost of those assets capitalized during the year. Based on the
information in Part two of the ASS, the FD prepares the following Journal
entries to reverse the balances concerning fixed asset under construction
accounts:
For Recording Reversals:
ACCOUNT
CATEGORY CODE DEBIT CREDIT
Construction of Buildings – residential 5801 XXXX
Construction of Buildings – residential 4501 XXXX
Construction of Buildings – non residential 5802 XXXX
Construction of Buildings – non residential 4502 XXXX
Construction of Infrastructure 5803 XXXX
Construction of Infrastructure 4503 XXXX
Construction of Military purpose buildings 5804 XXXX
Construction of Military purpose buildings 4504 XXXX
For Recording the New Information:
See the Journal entries given above under ‘For Recording New Information’.
GROUP WORK
1. What do you understand about depreciation?

2. Distinguish between the straight line and the declining balance methods of
depreciation giving examples. Which of the two methods is recommended
and why?
3. Distinguish between residual value and nominal value of fixed assets.
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4. There was a heated argument among friends that when fixed assets
become fully depreciated their value in the market also depreciates
completely and their residual value will be the disposal price. Discuss.
5. Calculate the depreciation of the following fixed assets for the years 1999
and 2000 using the straight-line method. Assume that the various assets
were all acquired at the same time in the years indicated.
Depreciation Date of
No. Particulars Cost Rate (% pa) purchase
1 5 Computers 100,000 10 1997
2 1 Motor vehicle 500,000 20 1996
3 Machinery installed 1,000,000 16 first yr., 1999
12
thereafter
4 Office furniture 100,000 10 1995
5 Buildings - 5,000,000 5 1998
residential
Establish the costs, accumulated depreciation and fund balances of the above
assets as on the end of the years 1999 and 2000 for recording the reversals and
the new entries that need to be made in respect of the above transactions.
The account codes to be used are the following:
Chart of Account codes

No. Particulars Fixed Asset Acc Deprec. Fund Fund contra
1 5 Computers 4531 4531.1 5731 5731.1
2 1 Motor vehicle 4521 4521.1 5721 5721.1
3 Machinery installed 4523 4523.1 5723 5723.1
4 Office furniture 4529 4529.1 5729 5729.1
5 Buildings - 4525 4525.1 5725 5725.1
residential
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10 SESSION X - DISPOSAL OF FIXED ASSETS

- Meaning of disposal of asset
- The need for disposal of assets
- the procedures to dispose fixed assets
Source of law - council of Ministers Financial Regulation No 17/1997 states that

disposal of public property shall be done in accordance with directives of the
Ministry of Finance.
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10.1 Why disposal of fixed assets?
Four reasons are:
Unserviceable – because of many factors including normal usage of the assets,

old age or accident, the cost of repairing the asset might become
much more expensive than the use the public body can drive out
of it. In such cases it becomes a rational decision to dispose the
asset instead of incurring additional repair cost.
Obsolete - Obsolescence could happen due to several factors. An asset

could be rendered obsolete due to technological change. It may
not fit with other assets in use. The out put of the asset might not
be accepted by the end user. Similarly, using the asset might not
be economical in terms of cost and time. Hence, the asset needs
to be disposed.
Surplus - Even if the asset is in a good condition, and is not obsolete, the
public body might not use it currently and in the near future for
some reason. Other public bodies might need such assets. In
such cases it is generally economical to dispose the asset rather
than keeping it and making it obsolete or unserviceable.
Abandoned assets - these are assets held under police or other legal institute’s
custody, or assets the owners of which are not known or are
unable to satisfy some legal requirements to become the final
owner of the assets. This included kept by customs and police.
The public bodies that keep these assets are not using the items
as fixed assets. Rather the assets are held due to the normal
course of operation of those public bodies. Hence the assets can
be considered as stock and should be dealt with under
consumable stocks management system.
10.2 When to dispose fixed assets

Prerequisites
 Segregation of fixed assets is done by FAMU through out the year

and especially during the ICC and the annual physical count.
 Disposal process should be started when there is an accumulation of

enough quantity of assets to be disposed
 Assets that might cause environmental and health hazard should be

disposed of as soon as possible.
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 Assets for disposal should not contain material that is not intended
for disposal. Examples of material that should be cleared from assets
before disposal are:
i. stationery—particularly printed stationery, which could be
misused, or used for fraudulent purposes;
ii. software, the unauthorized movement of which could breach
license agreements;
iii. classified information contained in hard or floppy disks;
iv. records, files, papers or whiteboards containing information
which, if disclosed, could breach privacy legislation, and/or
cause embarrassment or problems for the public body; and
v. Hazardous assets the transfer of which could create legal
liabilities.
 The public body should ascertain that all the assets it intends to
dispose are owned by it. If not, transferring such assets back to the
owner should be considered. If the owner could not be identified
clearly or it does not exist, GPAD should be requested to authorize
disposal of the assets.
The right time to start the disposal process should be determined after
considering these factors.
10.3 How to dispose?

Principles are:
 “The best available net return when sold”
 “To treat correctly assets requiring special consideration in their disposal,”

and
 “To be even-handed, open, and honest in all dealings”
Methods
a) Transfer to other public bodies
 When a public body decides to dispose assets, the first thing it

should consider should be demand for assets by other public bodies.
i. asset that could not be easily obtained in the market due to
various factors might be needed by PBs
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 When the asset to be disposed is expected to have possible heritage
or cultural value, the public body needs to determine:
1. Whether an asset has heritage or cultural significance;
2. Which public body is suitable custodians for the asset;
and
3. Whether to sell, donate or lend the item on a long-term
basis.
It is reasonable to transfer such assets free of charge or to accept an offer which is

less than the market value in order to ensure that items of genuine heritage
significance are preserved in an appropriate forum.
 When the cost of disposal is expected to be high. Advertisements

need not be announced, arrangements for public tenders are not
required, etc.
 When transfer it to other public bodies is the selected method of
disposal, invitation to those public bodies needs to be made with
details of:
 Descriptions of the property to be disposed
 The transfer value of the property. Transfer value should be
equal to estimations of marketable value. There should be
no subsidy or profit based on the transfer value as a result of
a transfer
 A closing date for enquiries from other public bodies.
 A consideration equal to the estimated marketable value shall be
made on transfer of assets between public bodies. All such transfers
shall be funded by budget
10.3.1 Disposal by sale

Can be made in one of two commonly known ways:
1. Sale by public auction
2. Sale through public tender
Selecting between the two methods need to be made after considering the
advantage and disadvantage of the two methods under the circumstance of the
public body in question.
The decision should also be based on practical and financial considerations such
as achieving the best price (net of costs) and the speed with which the
arrangements for sale can be made.
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A. Sale by public auction
Sales by auction is a public sale of assets by competitive bidding where the
price is determined by the highest acceptable bid.
Benefits
 Auctions are usually the most suitable outlet for high-volume, low-
value assets;
 Turnaround time, from delivery of assets to receipt of proceeds, is
minimal;
 Open and effective competition is achieved;
 When there are a large variety of surplus goods in one location, on-
site auctions may be arranged to avoid transport costs;
 Public attendance at auctions of assets helps transparency.
Problems
 Buyers may occasionally enter into collusive practices, such as
auction rings, to contrive to purchase goods at a price below the
maximum possible in an otherwise open and competitive forum.
Public bodies shall advertise the public auction and include the following details in
the advertisement:
 Name and address of the institution
 General description of the type and quantity of goods
 Place where the goods will be on display
 Place where the detailed list of goods will be available
 Date, time and location of the public auction
 Date and location that the bids will be opened
 Required payment period
 Statement that the institution can accept or reject any bid and may cancel
the auction at any time
The auctioneer shall state the reserve price before the auction begins. If this
reserve price is not met, the institution will retain the items. The disposal
committee shall then reconsider the most appropriate method of disposal.
B. Sale through public tender

Sales through tender is a public request for tender to dispose of assets, usually
achieved through advertising in the press or in a notice board.
This procedure is more resource-intensive than selling by auction but is an
effective way of selling high-value and unusual goods, items located out side main
towns or in remote areas and assets that have a geographically dispersed potential
market.
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Benefits
 The selling procedure is seen to be open and competitive. In the sale
process, the highest tender submitted will generally be accepted;
 The market of the day is tested to ensure that the maximum available
return is achieved;
 Post-tender negotiations may be undertaken where the highest
tender falls short of the market value or anticipated sale price of the
asset. Conditions attached to the sale may also be negotiated during
the process.
 Public body staff are able to bid for goods being disposed of through
a publicly competitive process.
Problems
 Lead times can be longer than other selling methods.
 In-house arrangements can be resource-intensive, particularly for
major projects.
Public bodies shall advertise the sale by tender and include the following details in
the advertisement:
 Name and address of the institution
 General description of the type and quantity of goods
 Place where the goods will be on display
 Place where the detailed list of goods will be available
 Final date for submission of bids
 Location of the tender box, exact date and time that it will be closed
 Date, time and location that the bids will be opened
 Level of the bid bond
 Statement that the bid bond will be enforced if bidders withdraw their
bids after bid opening
 Required payment period
 Statement that the institution can accept or reject any bid and may
cancel the tender at any time
The period that will be given to bidders to bid shall be set by the disposal
committee and shall be between 15 and 30 days.
The institution shall secure a separate tender box that shall remain open until the
time indicated in the advertisement of sale. At that time disposal, committee shall
seal the tender box. Any bids received after the tender period shall be returned
unopened to the tender.
The institution shall request a bid bond as security for the tenders. The institution
shall fix bid bond for each sale requiring a tender. The disposal committee shall
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set a fixed level of bid bond for each sale. Bid bonds shall be returned to losing
tenders as soon as the winning bidder is chosen.
The tenders shall be opened in public, in the presence of the bidders or a

representative of the bidders if the bidders choose to attend and members of the
disposal committee. The names and bids of the bidders shall be read out by the
chairman of the disposal committee and recorded by the Secretary of the disposal
committee.
The disposal committee shall decide which bid to accept. If the highest bid is
above the reserve price set, the disposal committee shall accept the highest bid. If
it is not, the disposal committee shall reconsider the most appropriate method of
disposal. In all matters the disposal committee proposes to the Head of the
institution a recommended decision for approval.
According to Government Property guide line No 6/1998, the method of advertising

for the sale depends upon the total estimated reserve price of a batch:
 If the reserve price for all items of public property in one batch is less than
Birr 10,000 the institution shall advertise the sale by public notice board for
at least 7 consecutive days or in a known government newspaper for at
least 2 consecutive days
 If the reserve price for all items in one batch is higher than Birr 10,000, the
institution shall advertise in a known government newspaper for at least 2
consecutive days.
10.3.2 Private negotiation

This is a sale negotiated directly between the buyer, and the public body
outside the competitive process used in tenders and auctions.
Private treaty sales may be appropriate in circumstances where:
 the market is limited and a single buyer who is willing to pay the
agreed price has been identified;
 the broader interests of the public body are served by selling to a
particular buyer, group or individual;
 Assets are located on buyer’s premises for some reason and it would
be reasonable to give the buyer first option to buy the asset at market
price.
The problems associated with this method are lack of competitive market
and hence competitive market price; there could be misconception about
the farness of sales; and negotiations to reach a desirable sale price can be
difficult, especially if public body staff have little experience in the process.
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Despite the problems, this method is one of the methods that need to be
considered when disposing the asset. Fore example MoFED has recently
authorized public bodies to sell scrap metal to local steel producing
companies at a fixed price per kilogram. Such decisions could be viable for
other items too.
10.3.3 Donation to other Governmental public bodies

(Schools, Universities, research centers, etc)
Some asset like computers and books can be disposed by giving
them to government owned schools and research centers.
The invisible value of this method of disposal could outweigh the

benefit that could be obtained through selling or the cost to dispose
the assets in any other way. Public bodies should therefore consider
this method of disposing assets.
GPAD shall provide the necessary guidelines to deal with this

method.
10.3.4 Cannibalization as spare part

The asset to be scraped can be used as spare part for similar assets
in good condition or in repairable condition.
The spare parts for those assets could not sometimes be obtained
easily in the market. For this reason, public bodies shall consider
cannibalization of assets that are considered scrap before disposing
the assets as scrap.
Cannibalization of assets for spare part should be authorized by the

head of the public body and the relevant government office. For
example, Transport and Communication Ministry needs to approve
cannibalization of vehicles.
The necessary guide line to deal with cannibalization of assets for

spare part shall be issued by GPAD.
10.3.5 Fixed Assets sold to Employees

In the interests of promoting probity, fair dealing and openness, the
public body should not sell surplus assets directly to staff outside a
publicly competitive process. However, staff members could
participate in a bid that is open to anybody that wishes to tender for
the asset.
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10.3.6 Sale as scrap
If at any stage of disposal it is estimated that the receipts will not be
enough to cover the costs of disposal, or if the asset could not be
sold as an asset in its own right, the property shall be scrapped.
10.3.7 Destruction, dumping or burying

Assets that can not be sold even as scrap should be cleared from the
premises of the public body. Those assets can be destructed,
dumped or buried in an appropriate place. If the public body has no
capacity to do this by its own, it could be buy the service of a clearing
agent who can remove the unwanted asset.
Where advice is required on safe and environmentally responsible

disposal options, the public body should contact the GPAD and other
relevant government offices for information on regulations and
facilities.
10.4 Disposal Committee

A Disposal Committee should be established at each institution to
serve management as an advisory body in the disposal of fixed
assets in accordance with the regulations in this regard.
The functions of the Disposal Committee should include:
1. Review the reports presented by the FAMU;

2. Recommend appropriate method of disposal for the assets or
approve the recommendation of the FAMU;
3. Follow up the process of bid advertisement, bid collection, bid
opening to ensure that the process is carried our transparently
and even-handedly;
4. Attend public auctions;

5. Recommend sales of assets after evaluating the bid
documents or attending the auctions;
6. Recommend disposal of assets in any other method other
than tender and auction;
7. Act as a body of inquiry or arbitration in the settlement of
disputes on fixed assets disposal.
8. Prepare and submit minutes of its meetings to the head of the
public body with a copy to FAMU.
The Disposal Committee will report to the head of the public body
who will appoint its members and Chairman. The Committee should
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comprise Divisional Heads from appropriate Divisions such as
Procurement, Planning, Finance, Legal, Technique and Property.
The Secretary will be the head of the FAMU and will assist the
Chairman in calling meetings and be responsible for the receipt of
reports, preparing minutes and maintaining all of the Committee’s
records. Committee meetings will generally be held at the Head
Office but may also be held at branch offices when necessary.
10.5 Receipts from Disposal

Cash received from disposals and kept by the institution form part of
the institution's budgetary allocation not an addition to it. This cash
can therefore be spent only upon any activities approved in the
budgetary estimates.
The public body can deduct expenditures incurred to dispose the

assets such as advertisement cost, transportation to the place of
disposal, perdiem and transport paid to committee members to
attend auctions and bid opening ceremonies, from the cash collected
from sales of the asset. This means only the net amount shall be
transferred to MoFED.
In the case of disposal of vehicles, however, 50% of the net profit

from disposal can be used to replace disposed vehicles. Approval to
use for this purpose should be requested from GPAD.
10.6 Accounting for disposal

When the assets to be disposed are returned to store, they are taken
out from the fixed assets management process.
The FAR are kept separately until the assets are disposed of and are
delivered to the buyer.
After the assets are disposed, report of disposed assets shall be

prepared by the disposal committee. Based on this report, the FAR of
assets disposed of shall be kept in a separate file. This action will
ensure that assets disposed of will not be included in the report of
assets in use.
As the annual summary is done after physical count is conducted and

disposed assets will not be obtained during count, the cost and
accumulated depreciation of the disposed assets will automatically
be removed from the accounting records.
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If a report of disposed assets is required for various reasons, it can
be prepared from disposed assets file.
The collection from sales of assets is accounted for as other income.

Cash or bank as appropriate will be debited and other income shall
be credited. If there are expenditures paid for disposal, that
expenditure account will also be credited to reduce it to zero.
Example: A vehicle with a reserve price of Birr 20,000 was sold for
Birr 30,000 through auction. Birr 2,000 was paid for advertisement.
The collection from sales was made in cash. The accounting entry
shall be:
Debit Credit
Cash 30,000
Advertisement expense 2,000
Other income 28,000
GROUP WORK - 1
In your group:
 discuss in detail the existing fixed assets disposal processes in your

PB and come up with all the problems you have noted;
 Discuss the problems you might think the new system might not
address.
NB: Do not propos solutions
GROUP WORK - 2
In Group work one; you have identified a number of problems associated with the
existing system and the new system of disposals. Please give the problems to
another group. The group collecting your comment is required to provide solutions
to each and every problem you raised.
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11
SESSION IX - REPORTING

The Trial Balance in general;
The Trial Balance or the monthly financial report;
The contents of the Trial Report including where the fixed assets fit in.
11.1 The Trial Balance

The trial balance under the double entry accounting system is a listing of the debit
and credit balances as on a given date to test the agreement of the debit totals
with the credit totals. The agreement does not, however, ensure accurate
recording of the transactions. This can be illustrated with the following examples.
Example: An organization, an NGO, had made collections, disbursements and

had various transactions with customers and suppliers during the period Hamle 1,
1998 to Meskerem 30, 1999. These transactions have been recorded in the books
of accounts, which have been totaled, and the balances established as on
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Meskerem 30. An extract of the balances from the books of accounts appear as
follows:
Sorted out into

Account description Balances Debit Credit
Cash on hand 10,000 10,000
Cash at bank 25,000 25,000
Accounts receivable 25,000 25,000
Accounts payable 15,000 15,000
Grant income 100,000 100,000
Donations received 50,000 50,000
Purchase of vehicle 50,000 50,000
Salaries 17,000 17,000
Rent 9,000 9,000
Car running 1,500 1,500
Telephone 2,000 2,000
Fund Balance (deficit) 27,300 25,500
Total 165,000 165,000
You can see the debit totals agreeing with the credit totals. However, on later
checking of the individual balances it was discovered that the amount shown as a
liability (Accounts payable) was in fact a collection from debtors and has, therefore,
to be deducted from Accounts receivable. Therefore, the balance under Accounts
receivable has to be Birr 10,000 and the Accounts receivable a Zero.
Coming back to Reporting, the end result of the Fixed Assets accounting process
so far discussed is Reporting. Unless the results are reported it would be
meaningless and purposeless.
The monthly report under the Modified Cash Basis of accounting system of the
Government of Ethiopia is the Trial Balance and the supporting schedules or
reports. The balance of fixed assets and related depreciation and, the
corresponding fund balance and related contra accounts should fit in the Trial
Balance so that the information is reported to MoFED every month to incorporate
the total value of fixed assets including those in progress both in the temporary
accounts and in the financial statements that are eventually presented to the
Government. It should be carefully noted, however, that the fixed assets accounts
will ONLY show the correct situations when the brought forward balances are
reversed and the new updated information from FAMU in Sene of each year is
incorporated.
The format of the Trial balance (ME/HE 27) remains the same except that four
additional lines are added for fixed assets as follows (the amended version of the
Trial Balance is given in Annex XI):
Account
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code Account description Debit Credit
- Net Book Value of Fixed assets –(Total of fixed assets XXX
report – Part one)
- Fixed assets under construction (Total of fixed assets XXX
report – Part three)
- Fixed assets fund –(Total of fixed assets report – Part two) XXX
- Fixed assets under construction fund (Total of fixed assets XXX
report – Part three)
The figures that go into the debits and the credits of the above lines are the Totals
in the Fixed Assets Report. These reports are developed for this purpose.
The complete forms of the fixed asset reports are given as an annex in the manual.
The explanation on the report is given hereunder.
Part one summarizes the ledger balances of cost of fixed assets and the
accumulated deprecation. On the debit side the Costs/ Valuations are filled. On the
credit side, the balances of accumulated depreciation are filled. The totals of the
debit and the credit sides are written in the “Total” row. The difference (the net
book value) between the two is written on the debit side of the report on the “Net
amount (to Trial Balance)” row.
Part two summarizes the fixed assets fund and the fixed assets fund contra
account. On the debit side, the fixed assets fund contra balances and on the credit
side, the balances of the fixed assets fund are filled. The totals of the debit side
and the credit sides are written on the “Total” row. The difference (the net fund
balance) is written on the credit side of the report on the “Net amount (total to Trial
Balance” row.
Part three summarizes the balances of fixed assets under construction and the
related fund accounts. On the debit side the costs and on the credit side, the fund
balances are filled. The totals of the debit and the credit sides are written on the
respective side on the “Total” row. The two sides should always be equal. The total
of each side is taken to the Trial Balance.
Note: The basic rule for preparing the Fixed Assets Report is that fixed assets
and fixed assets under construction balances are reported to MoFED once in a
year. The report is, therefore, prepared only for the month of Sene of every year.
Fixed assets figures are not incorporated in the Trial Balances for the months of
Hamle to Ginbot of the next year.
GROUP WORK
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1. Explain what the Trial Balance is under the financial reporting system in
general and the Ethiopian Government double entry accounting system
in particular.
2. How the Fixed Assets reporting would fit in the Government Trial
Balance. Explain.
3. Show the new lines added in the modified Trial Balance to accommodate
the fixed assets and construction in progress balances.
12 SESSION XI - OTHER ISSUES

- About the requirements of securing ownership documents;
- About the need to acquire insurance cover to minimize risks; and,
- The need to computerize in the future.
12.1 Ownership of assets
Ascertaining ownership during the ICC activity is a difficult task. It will not always
be easy for the PBs to ascertain the ownership status of their fixed assets. Where
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the status of the ownership of an asset is unclear, the PB should act according to
the recommendations given in the FOFAMM.
12.1.1 Ownership of Motor Vehicles, Equipment,

Machinery that exist n the buildings and Recording
in the FAR
Ownership of Vehicle, equipment, machinery that exist in the premises of the PB
and that have been used by the PB for a number of years may not be that
controversial. The chances that the legal owner could claim the return maybe so
small that the PB can confidently consider it as its own asset. In any case, securing
legal opinion maybe advisable.
There could be other issues related to ownership of certain assets. GPAD should
collect the issues, summarize and present to the concerned body to seek
solutions. Such issues should not be left open as they materially contribute the
effectiveness or otherwise of the management of Government Owned Fixed
Assets.
12.2 Insurance
In accordance with Article 62 of The Council of Ministers Finance Regulations No
17/1997, “the Heads and employees of public bodies are responsible for the
protection and preservation of public property.”
One such protection is the maintenance of records of control and ensuring proper
use and physical existence in good condition. The other concerns risk
minimization. One such way is purchasing appropriate insurance policy against
unforeseen calamities.
The Heads of PBs and the FAMU should assess for which of the assets the PB
should secure insurance cover and accordingly act. Once purchased, the policy
should be renewed every year in advance of its expiry date.
12.3 Computerization of the fixed assets management

The procedures and formats provided in the GOFAMM are for managing fixed
assets manually. In the future, however, the management system might evolve to
computerized system. The GOFAMM could serve as a basis for computerization of
the system.
Using fixed asset management software enables quick and accurate inventory of
fixed assets. It is possible to track the current location of the assets and the current
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custodian responsibilities. PIN codes can be replaced by barcodes. Software
enables scanning and printing barcodes; maintenance of supplier information,
asset disposals, employee data, and maintenance records. Fixed asset
management software makes calculating depreciations easy; the software can
automatically generate both monthly and annual depreciation tables using the
straight-line, double-declining balance, or sum of year’s digits depreciation
methods, if there comes a move to other depreciation methods on authorization.
Using the software it is possible to manage large numbers of locations, custodians
and assets.
Naturally, a move towards computerization is extremely necessary to be efficient,

effective and economical in the long run. Software could be developed in house or
acquired. However, in both of the above cases serious considerations and studies
of various factors should be a decision making requirement before entering into the
commitment.
GROUP WORK
1. What is ownership? How does it differ from possession and using the
assets free of charge? Does the possessor acquire ownership right if
he has kept the fixed asset, say a building or a motor vehicle, in his
hands for quite sometime?
2. What must a PB do if the ownership status of a fixed asset, say a

building it occupied for a long time is uncertain?
3. What is insurance? How does safekeeping differ from insurance? A

Government owned motor vehicle with a replacement value of Birr
200,000 is insured for Birr 300,000. Comment.
4. What do you understand by computerizing the management of

Government Owned Fixed Assets? How do you think that this can be
accomplished?
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TRAINING MODULE

1 SESSION I - GETTING STARTED.............................................................................4

Workshop opening - The Government Property Management

Introduction of trainers and participants - Trainers

Introduction to ice break, warm ups and energizers

Select warm up instructor - This person shall be responsible to

Select energizers facilitator - Energizers keep all of us alert. We

Selection of feed back teams - Two or three persons will be

Timekeeper & supervisor - Shall control that all participants are in

Afternon - From 3:30PM to 4:00PM

Timekeeper & supervisor - In addition to keeping time, as a

 What type of fixed assets management system exist in

 What is your role in the management of fixed assets of

Introduction to training methodology

A person's performance is improved by showing him/her how to master a new or

Training is different from Education. Education is training people to do a

Participants’ expectations and concerns

Let participants go back in-group and try to

Overall Objective of training

Specific objective of training

To understand the new system of the Fixed Assets Management;

· To understand the process of identifying the location, condition, ownership

· To understand how and why comprehensive count of fixed assets is conducted;

· To understand the method of assigning value for all fixed assets;

· To understand what records are kept in the management of fixed assets;

· To understand the methods of depreciating the cost of fixed assets;

· To be able to provide training to other colleagues on the new system;

Coverage of the training - The Manual for the fixed assets

2. STRUCTURE FOR THE MANAGEMENT OF GOVERNMENT

3. THE ICC AND REGISTER MAINTENANCE PROCESS

4. ASSIGNING PIN AND MARKING OF FIXED ASSETS IN USE

5. VALUATION OF ASSETS WITH OUT COST

6. CHANGES IN THE REGISTER

7. ACCOUNTING TREATMENT OF COST OF ASSETS

8. INCORPORATING THE INITIAL VALUE OF EXISTING ASSETS

10. ANNUAL PHYSICAL COUNT AND ANNUAL SUMMARY

11. DISPOSAL OF FIXED ASSETS

13. OTHER ISSUES

Formats newly introduced or modified

Annex I – Fixed Assets Count Sheet (FACS)

Presentation - Every morning, the first 30 to 40 minutes is used to present

2 SESSION II - BASIC CONCEPTS AND

On completion of this Session,

The Definition of Fixed Assets;

The meaning of Depreciation;

The Definition of Depreciable amount;

The Meaning of Supplies;

The meaning of Residual Value vs. Nominal Value;

The meaning of Useful Life; and,

The Definition of costs.

2.1 Introduction, Basic Concepts and Principles

The present attempt is to compile financial data (cost/ valuation and

The concepts and principles include:

- Capitalization of tangible fixed assets in the accounting system

According to Council of Ministers Financial Regulations No. 17/ 1997,

2.1.2 Fixed Assets

Authoritative definition, the Council of Ministers Financial Regulations No. 17/1997.

2.2 Fixed Assets’ Depreciation