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الموضوع: Fixed Asset System

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    افتراضي Fixed Asset System


    The Conceptual Fixed Asset System
    Fixed assets are the property, plant, and equipment used in the operation of a business.
    These are relatively permanent items that often collectively represent the largest financial investment by the organization. Examples of fixed assets include land, buildings, furniture, machinery, and motor vehicles. A firm’s fixed asset system processes transactions pertaining to the acquisition, maintenance, and disposal of its fixed assets. The specific objectives of the fixed asset system are to:
    1. Process the acquisition of fixed assets as needed and in accordance with formal management approval and procedures.
    2. Maintain adequate accounting records of asset acquisition, cost, description, and physical location in the organization.
    3. Maintain accurate depreciation records for depreciable assets in accordance with acceptable methods.
    4. Provide management with information to help plan for future fixed asset investments.
    5. Properly record the retirement and disposal of fixed assets.
    3 For added internal control, many companies encourage their employees to have their checks directly deposited into their bank accounts.

    The Conceptual Fixed Asset System
    The Logic of a Fixed Asset System
    The Physical Fixed Asset System
    Computer-Based Fixed Asset System
    Controlling the Fixed Asset System
    Summary

    The fixed asset system shares some characteristics with the expenditure cycle presented in Chapter5, but two important differences distinguish these systems. First, the expenditure cycle processes routine acquisitions of raw material and finished goods inventories.
    The fixed asset system processes nonroutine transactions for a wider group of users in the organization. Managers in virtually all functional areas of the organization make capital investments in fixed assets, but these transactions occur with less regularity than inventory acquisitions. Because fixed asset transactions are unique, they require specific management approval and explicit authorization procedures. In contrast, organizations often automate the authorization procedures for routine acquisitions of inventories.
    The second difference between these systems is that organizations usually treat inventory acquisitions as an expense of the current period, while they capitalize fixed assets that yield benefits for multiple periods. Because the productive life of a fixed asset extends beyond one year, its acquisition cost is apportioned over its lifetime and depreciated in accordance with accounting conventions and statutory requirements. Therefore, fixed asset accounting systems include cost allocation and matching procedures that are not part of routine expenditure systems.
    The Logic of a Fixed Asset System
    Figure 6-11 presents the general logic of the fixed asset system. The process involves three categories of tasks: asset acquisition, asset maintenance, and asset disposal.

    Asset Acquisition :
    Asset acquisition usually begins with the departmental manager (user) recognizing the need to obtain a new asset or replace an existing one. Authorization and approval procedures over the transaction will depend on the asset’s value. Department managers typically have authority to approve purchases below a certain materiality limit. Capital expenditures above the limit will require approval from the higher management levels. This may involve a formal cost-benefit analysis and the formal solicitation of bids from suppliers.
    Once the request is approved and a supplier is selected, the fixed asset acquisition task is similar to the expenditure cycle procedures described in Chapter 5, with two noteworthy differences. First, the receiving department delivers the asset into the custody of the user/manager rather than a central store or warehouse. Second, the fixed asset department, not inventory control, performs the record-keeping function.
    Asset Maintenance :
    Asset maintenance involves adjusting the fixed asset subsidiary account balances as the assets (excluding land) depreciate over time or with usage. Common depreciation methods in use are straight line, sum-of-the-years’ digits, double-declining balance, and units of production. The method of depreciation and the period used should reflect, as closely as possible, the asset’s actual decline in utility to the firm. Accounting conventions and IRS rules sometimes specify the depreciation method to be used. For example, businesses must depreciate new office buildings using the straight-line method and use a period of at least 40 years. The depreciation of fixed assets used to manufacture products is charged to manufacturing overhead and then allocated to WIP. Depreciation charges from assets not used in manufacturing are treated as expenses in the current period.
    Depreciation calculations are transactions that the fixed asset system must be designed to anticipate internally when no external event (source document) triggers the action. An important record used to initiate this task is the depreciation schedule. A separate depreciation schedule, such as the one illustrated in Figure 6-12, will be prepared by the system for each fixed asset in the fixed asset subsidiary ledger.

    A depreciation schedule shows when and how much depreciation to record. It also shows when to stop taking depreciation on fully depreciated assets. This information in a management report is also useful for planning asset retirement and replacement.
    Asset maintenance also involves adjusting asset accounts to reflect the cost of physical improvements that increase the asset’s value or extend its useful life. Such enhancements, which are themselves capital investments, are processed as new asset acquisitions. Finally, the fixed asset system must promote accountability by keeping track of the physical location of each asset. Unlike inventories, which are usually consolidated in secure areas, fixed assets are distributed throughout the organization and are subject to risk from theft and misappropriation. When one department transfers custody of an asset to another department, information about the transfer should be recorded in the fixed asset subsidiary ledger. Each subsidiary record should indicate the current location of the asset. The ability to locate and verify the physical existence of fixed assets is an important component of the audit trail.
    Asset Disposal :
    When an asset has reached the end of its useful life or when management decides to dispose of it, the asset must be removed from the fixed asset subsidiary ledger. The bottom left portion of Figure 6-11 illustrates the asset disposal process. It begins when the responsible manager issues a request to dispose of the asset. Like any other transaction, the disposal of an asset requires proper approval. The disposal options open to the firm are to sell, scrap, donate, or retire the asset in place. A disposal report describing the final disposition of the asset is sent to the fixed asset accounting department to authorize its removal from the ledger.
    The Physical Fixed Asset System
    Computer-Based Fixed Asset System
    Because many of the tasks in the fixed asset system are similar in concept to the purchases system in Chapter 5, we will dispense with a review of manual procedures. Figure 6-13 illustrates a computer-based fixed asset system, which demonstrates real-time processing. The top portion of the flowchart presents the fixed asset acquisition procedures, the center portion presents fixed asset maintenance procedures, and the bottom portion presents the asset disposal procedures. To simplify the flowchart and focus on the key features of the system, we have omitted the processing steps for AP and cash disbursements.

    Acquisition Procedures :
    The process begins when the fixed asset accounting clerk receives a receiving report and a cash disbursement voucher. These documents provide evidence that the firm has physically received the asset and show its cost. From the computer terminal, a clerk creates a record of the asset in the fixed asset subsidiary ledger. Figure 6-14 presents a possible record structure for this file.
    Notice that in addition to the historic cost information, the record contains data specifying the asset’s useful life, its salvage (residual) value, the depreciation method to be used, and the asset’s location in the organization.

    The fixed asset system automatically updates the fixed asset control account in the general ledger and prepares journal vouchers for the general ledger department as evidence of the entry. The system also produces reports for accounting management. Figure 6-15 illustrates the fixed asset status report showing the cost, the accumulated depreciation (if any), and residual value for each of the firm’s fixed assets.
    Based on the depreciation parameters contained in the fixed asset records, the system
    prepares a depreciation schedule for each asset when its acquisition is originally recorded. The schedule is stored on computer disk to permit future depreciation calculations.

    Asset Maintenance :
    The fixed asset system uses the depreciation schedules to record end-of-period depreciation transactions automatically. The specific tasks include (1) calculating the current period’s depreciation, (2) updating the accumulated depreciation and book value fields in the subsidiary records, (3) posting the total amount of depreciation to the affected general ledger accounts (depreciation expense and accumulated depreciation), and (4) recording the depreciation transaction by adding a record to the journal voucher file. Finally, a fixed asset depreciation report, shown in Figure 6-16, is sent to the fixed asset department for review.
    Department managers must report any changes in the custody or status of assets to the fixed asset department. From a computer terminal a clerk records such changes in the fixed asset subsidiary ledger.


    Disposal Procedures :
    The disposal report formally authorizes the fixed asset department to remove from the ledger an asset disposed of by the user department. When the clerk deletes the record from the fixed asset subsidiary ledger, the system automatically (1) posts an adjusting entry to the fixed asset control account in the general ledger, (2) records any loss or gain associated with the disposal, and (3) prepares a journal voucher. A fixed asset status report containing details of the deletion is sent to the fixed asset department for review.
    Controlling the Fixed Asset System
    Because of the similarities between the fixed asset system and the expenditure cycle, many of the controls are the same and have already been discussed. Our discussion of fixed asset controls will thus focus on three areas of principal difference between these systems: authorization, supervision, and independent verification.
    Authorization Controls :
    Fixed asset acquisitions should be formal and explicitly authorized. Each transaction should be initiated by a written request from the user or department. In the case of high-value items, there should be an independent approval process that evaluates the merits of the request on a cost-benefit basis.
    Supervision Controls :
    Because capital assets are widely distributed throughout the organization, they are more susceptible to theft and misappropriation than inventories that are secured in a warehouse.
    Therefore, management supervision is an important element in the physical security of fixed assets. Supervisors must ensure that fixed assets are being used in accordance with the organization’s policies and business practices. For example, microcomputers purchased for individual employees should be secured in their proper location and should not be removed from the premises without explicit approval. Company vehicles should be secured in the organization’s motor pool at the end of the shift and should not be taken home for personal use unless authorized by the appropriate supervisor.
    Independent Verification Controls :
    Periodically, the internal auditor should review the asset acquisition and approval procedures to determine the reasonableness of factors used in the analysis. These include the useful life of the asset, the original financial cost, the proposed cost savings as a result of acquiring the asset, the discount rate used, and the capital budgeting method used in the analysis.
    The internal auditor should verify the location, condition, and fair value of the organization’s fixed assets against the fixed asset records in the subsidiary ledger. In addition, the automatic depreciation charges calculated by the fixed asset system should be reviewed and verified for accuracy and completeness. System errors that miscalculate depreciation can result in the material misstatement of operating expenses, reported earnings, and asset values.
    Summary
    The chapter began with an examination of payroll procedures. The discussion focused on fundamental tasks; the functional departments; and the documents, journals, and accounts that constitute the payroll system. Common exposures and controls that reduce risks inherent in payroll activities were explained. In addition, we reviewed the operational features and the control implications of technology used in payroll systems.
    The second section of the chapter presented the typical features of the fixed asset system. Fixed asset accounting involves three classes of procedures: asset acquisition, asset maintenance, and asset disposal.
    We examined the files, procedures, and reports that constitute the fixed asset system. We concluded our discussion by reviewing the principal risks and controls in the system.


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  2. #2
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    افتراضي رد: Fixed Asset System


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    افتراضي رد: Fixed Asset System

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    افتراضي رد: Fixed Asset System

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    افتراضي رد: Fixed Asset System

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