Purpose:

 This SOP document establishes a defined policy for procurement of Fixed

Assets as per Company’s internal Approval matrix.
 It establishes policy & procedures for accounting of Fixed Assets as per
relevant Accounting Standards.
 It regulates the ordering of Fixed Assets in accordance with the Capital
Expenses Budget.
 It emphasizes on the identification of Fixed Assets and its recording in 
FixedAssets Register & its periodical physical verification.

SCOPE
 This policy document will apply to the assets managed by the company at all its
units / divisions.
 It would also emphasize on the additions and deletions made to the fixed assets.
 It also focuses on the proper documentation of these assets.
 It would apply to all types of Fixed assets
 Budget Planning

1. Cost Benefit Analysis

2.

Budget
Preparation

Budget Approval by:

 DIRECTORS
 CFO
 1.) Indenting: 2.) Purchasing: 3.) Receipt:

Division Analysis of Indent
Specific Deptt.
Invite Quotations (at least
three)
Raises Indent to Stores
Prepare Comparative
Chart
Authorized by
respective Div. Head
Selection of Vendor
Receipt at Unit
Gate Officials verify Asset
as per documents & make
Entry in Gate Inward
Register
Stores Receive Asset, verifies
Bill & arrange for inspection of
Asset by the User
Inspection of Asset by the User

Division check availability

&ensures that indent is
within capital budget The final note with above Preparation of MRN
supporting will go to
Management for final approval
Sent to Division head MRN along with PO &
for approval Invoice sent to Accounts

Raise PO
Posting in Accounts Dept.
Accounting Treatment:

Asset addition

DATE VALUE

Asset does not require Asset requires 1) Purchase Price

Installation/Inspection Installation/Inspection 2) Duties & Taxes (non-recoverable)
3) Freight
4) Installation Charges, if any
5) Forex Fluctuations (As per AS – 11)
6) Less Govt Grants
 Capitalization &  Capitalization & 7) Less Trade Discounts & Rebate, if
Accounting Entry on Accounting Entry on any
the Date of Receipt of the Date of Receipt of
Asset Commissioning
Certificate from the
Technical Deptt.
 Till such date,
asset shown as
Capital Work In
Progress (CWIP)
 Sale & Discard of Fixed Asset

Date on which
the asset is
retired from its
active use

Capital Work In Progress (CWIP)

 It is an asset which is not completed to be used. All expenses in relation to the CWIP should be debited
to CWIP A/c. When the asset is completed & ready to be used then Accounts Dept should receive
Installation cum Commissioning Certificate from Divisional Head/ Prod Head and then amount should be
transferred to the Respective Asset A/c. Quarterly review should be done in order to ensure that expense
in relation to CWIPis debited to CWIP A/c & not in the respective expense A/c.
Fixed Assets Tagging & Coding Process:
The process of scientifically numbering fixed assets is called tagging. The purpose of Tagging
assets is to track the movement of assets from one place to another place. A tag (bar code or
unique number) helps in verification of the existence of assets and their location, aids in
maintenance, provides a common ground for communication between the Accounts Department
and the end-users and recording the net book value of asset in case of sale / scrapping. All fixed
assets must be tagged except land, building etc.

Inspection

Recording the Code

in FAR if generated
manually
 Fixed Assets Register (FAR):

Contents of FAR

Asset
Location
Code

Asset Quantity

Description

Asset Invoice
Category No.
Supplier’s
Cost Depreciation Name

Basic Duties Installation Forex Interest

Freight
Value & Taxes Charges Fluctuations Cost
 FAR Alteration
FAR will be updated once in six months. It will be updated for the following reasons:

Addition of Sale, Discarding, Providing Inter Unit Asset

an Asset: Demolition Depreciation: Transfer:
of Asset
• All Fields • Depreciation Rate • Location
• All Fields
• Depreciation Amt. • Additional duty
& taxes

 FAR must be Yearly reviewed for ensuring its accuracy by an appropriate authority in the
Finance Deptt.
 Physical Verification :
 Objective: To verify the actual existence of the book assets, check their
condition & provide for adjustments (short/excess, if any) of fixed assets
found during physical.

Physical
Verification Policy

Physical
Adjustments
Team Members: Tenure: Verification
relating to
• Stores Personnel Once in three Report signed
Excess/Shortage
• Expert from Technical Deptt years by Team
by the Finance
• Personnel from User Deptt Members &
Head
• Personnel from Accounts Deptt Unit Head
• Finance Personnel from HO
• Internal Auditor
 Physical VerificationProcess

Intimation by HO personnel to unit head via mail regarding Phy.

Verification Program showing its date, team members, procedure etc.

Div Head forwards the mail to stores & engg deptt.

Physical Verification conducted on the decided date by the respective team

Based on the Physical, a Taking Report must be prepared signed by the team members and unit head

Such Report must be compared with the FAR and differences noted along with reasons

Based on differences a Reconciliation Statement must be prepared

Such Statement must be presented before higher authority like CFO & ED

After their approval necessary actions to be taken & adjustments to be made in books
r

What When By Whom Authorized By Approved By Review Period

Budget Annually Op & Fin CFO Directors Twice in a Year
Preparation _by Feb Dept

Approval Respective Div. Head CFO Directors

Matrix Dept

Purchase
Acquisition Division CFO Directors
Dept.

After all Accounts

Accounting Manager CFO Quarterly
requireme Dept
nt fulfils
Asset Admn. &
After
Tagging & A/cs Dept. Head CFO Quarterly
Installation
Coding Dept

FAR Accounts Accounts Finance

Dept. Head Quarterly
Updation Dept Dept Manager

Physical
Physical Once in a CFO Once in a Year
Verification Auditors
Verification year Team