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Chapter11.Maintainance of Asset Registers PDF
Chapter11.Maintainance of Asset Registers PDF
E2-E3: MANAGEMENT
CHAPTER-11
MAINTENANCE OF ASSET REGISTERS
(Date of Creation: 01-04-2011)
Lesson Objectives:
Definition of Fixed assets, Work in Progress, Inventory
BSNL guidelines on classification of Assets, WIP
Life of Assets
Maintenance of Records of Assets, WIP and Inventory
Scrapping of Assets and Disposal
Introduction:
All the Public Sector Undertakings are governed by Company Act 1956 and as per the
requirement of Company Act 1956, the maintenance of Assets of the enterprise is
statutorily required to be done and updated from time to time. Detailed Fixed Asset
Register is required to be maintained by all SSAs and a Consolidated Fixed Asset
Register is also required to be maintained at Circle Level taking into account all the
figures of its SSAs.
As per accounting term assets are of two types- one is current assets and other is fixed
assets. Current assets which are shown in the Balance Sheet e.g. Cash in hand, Amount
receivable from other organization, Bank Balance etc. whereas fixed assets are
infrastructure of the company such as Land, Building, Apparatus & Plants, Computers,
Office Machinery and equipments etc are the examples of Fixed Assets. Fixed assets are
further classified under the following categories:
1. Tangible assets: Tangible assets are those assets having physical substance that
can be seen and touched like Buildings, Plant and machinery etc.. These are governed by
Accounting Standard 10.
2. Intangible Assets: Intangible assets are those assets that are not having any
physical substance but however future economic benefits are expected to flow from them
to the enterprise viz. goodwill, trademark, computer software, patents etc.
On formation of BSNL w.e.f. 01.10.2000 all assets and liabilities of DTS and DTO were
transferred to BSNL.The asset to the tune of 63,000 crore approx were provisionally
transferred to BSNL and Opening Balance was taken in BSNL Books
On the basis of nature of activities, the expenditure incurred on behalf of company will
either be revenue expenditure or capital expenditure. Here we are concerned only about
capital nature of expenditure. The capital nature of expenditure is initially booked under
Inventory, Work in Progress or directly under Asset. The difference between Work in
Progress expenditure and Fixed asset expenditure is that from the date of booking under
Fixed Asset, the depreciation on such assets starts. On the other hand if capital nature of
expenditure is booked under WIP or Inventory, the depreciation does not start till the
transfer of such expenditure to Fixed asset.
2.2 Addition and Alterations: Enlargements and extension of the existing facilities
are referred to as additions. Expenditure for an addition consisting of an entirely new
unit, plant and machinery will be of purely of capital nature. If any additional expenditure
is incurred for actually enhancing the earning capacity of any existing unit, such type of
expenditure is also to be capitalized.
2.5 Replacement of Asset as a whole: In this case, the whole amount of old asset
appearing in the books to be written off and the expenses incurred on replacement is to be
capitalized. The value realized for the old asset disposed as per procedure laid down is to
be accounted as capital gain or loss. The value realized over and above the book value of
the assets disposed off will be a “gain” and in a reverse situation it will be a loss.
2.7 Replacement of part of the asset: There will be certain expenditure incurred for
replacement of parts of the main equipment or an assets to keep it in running position,
such expenditure has to be considered as to be ordinary repair and charged to the P&L
Account.
2.9 Asset Sold: Asset sold/transferred are adjusted on receipt of details from the
custodian of those assets by reducing the total cost of the assets and cumulative
depreciation provided thereon and net amount is adjusted against the amount received on
sales. Profit/loss on sale of fixed assets derived from book value is accounted for in P&L
Account.
ii) Buildings: This includes the cost of construction or acquisition of the buildings/flats,
internal water supply and sanitary fittings, internal electrification lifts pump sets, fire
fighting equipments and boundary wall, wells, tube wells but does not include cost of
land. It also includes buildings/flats purchased on perpetual lease basis and the buildings
constructed on land taken on lease basis. The cost of building foundation, structures,
roofing, flooring, masonry work, windows, etc is booked under this head. A building is
said to have been completed as and when it is ready for use. In other words it is
capitalized to the extent it is ready for use as per Management Certificate. In case
buildings which are purchased, they are capitalized as and when the possession is handed
over.
iii) Partitions: Partitions are a common expenditure which either occur due to new
construction or replacement or repair. All expenditure which is in the nature of
replacement or repair is to be charged to P&L A/C. New Construction of partitions
should be debited to furniture and Fixture. However, partitions valued up to Rs. 2 lakhs
should be charged to P&L Account and a separate register for such assets is to be
maintained.
iv) Cables: This caption includes all types of UG cables with related terminals, items
PCMs etc,. The related expenditure to put into use the cable, such as trenching, laying,
paying off, reinstatement, pressurization etc. as well as ducting comprises the cost of
`Cable Asset’. This also includes CT Boxes, Cable Jointing kits all types of switch board
cables, etc. related to cable work.
v) Apparatus & Plants: This item includes Auto/Electronic and New Technology
Exchange systems with related equipments viz. HDFs, Engine Alternators, Power plants,
Batteries etc. , Junction equipments, Transmission Equipments of all technologies
including coaxial equipments, terminals, repeater carrier equipments, VFT terminals,
PCM equipments, multiplexing equipment, data modems, M/W radio relay equipments,
terminal equipments relating to ISDN video, PON ( Passive Optical network) and DLC
on of systems etc. SCPA equipments for satellite stations, Antennas & Waveguides,
Internet equipment, towers of all types, MUX equipments and GSM equipments etc.
These are capitalized on commissioning of exchange/route/link. Remaining equipments
are capitalized as and when the exchanges are commissioned to its full capacity
utilization and are put to use either in full or part during the accounting period. The
remaining parts which are commissioned in the subsequent years should be capitalized in
the period in which the exchange has been commissioned.
vi) Lines and Wires: Expenditure on Lines and wires are capitalized as and when these
are erected or lines laid and a completion certificate is issued thereof to the extent of
completion.
vii) Vehicles: Expenditure on purchase of vehicles is capitalized as and when these are
purchased.
viii) Other Assets: Expenditure on other assets is capitalized as and when these are
purchased.
ix) Small Tools: These are to be charged to the P&L Account. The expenditure involved
may be for the activities of Installation, Maintenance or for operation. The expenditure
may be charged according to its nature. Full depreciation is charged on Capital
expenditure up to Rs.5, 000/-
3.3: Identification of Assets: Asset Registers: The asset registers will be maintained &
identified with reference to estimate files (showing quantitative provisions,) works
registers [ for expenditure on related completed estimates ] & Management Certificates as
well as work schedules of civil / Electrical Wings.
While all the bookings of salary, DA etc. of concerned officers/staff directly relating of
project works will be booked under D&E at first instance, the net expenses booked under
this caption are allocated to the Work in Progress and Gross Block in the following
manner:
a) The expenses directly related to a particular project/works/job are booked to the
work concerned.
b) The expenditure of common nature not identifiable with any project/work/job are
suitably allocated to different project.
3.9 Treatment of materials supplied for works: Whenever the material is received at
the site or received by the consignee, it should invariably be noted down in the prescribed
registers. It may be treated as Work in progress/ maintenance or repair expenses as the
case may be.
The stores which are directly received and issued by the stores organization of BSNL will
be classified as Work in progress with the project estimate duly approved; maintenance
or repairs expenses as the case may be.
If the material is not immediately used for any purpose, i.e. for installation,
maintenance or repair, it should be treated as an inventory and whenever such an
item is transferred to installation, the value of such item be booked under Work in
progress ( with the project estimate duly approved).
3.10 Treatment of Work in Progress as Fixed Assets: For capitalizing & taking into
accounts as fixed assets, “Management Certificate” will be issued by the Management
as enjoyed under items 2.2.2 to 2.2.5 of accounting policies of BSNL. These management
certificates are required to be produced to Auditors during the auditing of fixed assets.
Performa for Management certificate is enclosed as annexure of the handout.
3.11 Review of Pending Works- in Progress: There is imperative need to ensure that
the works in progress are completed well in time and converted in to assets. Only when
the work in progress is converted into asset, the corporation will be in a position to claim
the benefit of depreciation. While WIP should be completed at the earliest, in any case, it
should also be ensured that more than one year old item is not allowed to remain in Work
in progress without any valid reason. All the unit I/Cs of executing the works must
thoroughly review the pending WIP and issue certificates to the accounting units
indicating the date of completion/commissioning of the work the date of
completion/commissioning of the work and value is very much relevant for the
calculation of depreciation.
3.13 Depreciation:
Depreciation means a fall in the quality, quantity or value of an asset. The net result of an
asset’s depreciation is that sooner or later the asset will become useless. The factors that
cause depreciation are:
a) Wear and tear due to actual use
b) Efflux of time- mere passage of time will cause a fall in the value of an asset even
if it is not used.
The fact to remember is that except in a few cases ( e.g. land and old paintings) all assets
depreciate. Though current assets may also loose value, the term depreciation is used
only in respect of fixed assets and is usually confined to the fall in value caused by
factors (a) and (2) mentioned above.
3.14 Methods for Providing Depreciation: There are various methods for providing
depreciation. In BSNL depreciation is provided on written down value method. Under
this method, the rate or percentage of depreciation is fixed, but the first year, depreciation
is written off proportionate to the actual period in use. The Depreciation on the Rs.
20,000- the cost of the asset- at the rate of 10% will be Rs. 2000 in the first year. This
will reduce the book value of the asset to Rs. 18,000. Depreciation in the second year will
be Rs. 1800 i.e. 10% of Rs. 18000/-.
3.15 Pro-rata Depreciation: Schedule XIV to the Companies Act provides that
depreciation on assets acquired or sold/discarded during the year should be calculated on
a pro-rata basis from the date of the addition or upto the date on which the asset was sold/
discarded.
3.16 Depreciation on low cost items (Petty Assets): The Income Tax Act, 1961
provides for 100 % depreciation on those items of plant and machinery whose actual cost
does not exceed Rs. 5,000 each. Assets costing up to Rs. 5,000/- purchased during a
financial year, 100% depreciation must be provided in the year of purchase of such type
of assets. All such assets may also be shown in asset register and accounts also.
1. Building = 5%
2. Apparatus & Plants = 15.33%
3. Motor Vehicle & Launches = 25.89%
What is obsolete Assets: The Asset which has outlived its economic life, or due to
change of technology it is not useful to generate revenue in that particular position may
be treated as obsolete asset.
What is unserviceable assets: The asset which is not useful for the department being
beyond economic repairs and as such is not useful for generating revenue.
What is the meaning of surplus Assets: An asset may be treated as surplus when the
same is in excess of requirement for a specified period.
What is non-moving/slow moving inventories: The terms non moving & slow moving
are not applicable to fixed assets, rather than the same are applicable to inventory/stores
items. The inventory items/store items may be considered as `non moving’ if an
inventory item is lying in stock/depots continuously for more than three years without ny
issue. The store items are termed `slow moving’ when only 10% to 15% of the said
items in stock are issued each year for a period of 2 to 3 years continuously.
Subjective Questions
1. How is Assets Classified? Give 2 Examples each?
2. Write short note on physical verification of Assets?
3. Write short note on Decommissioning of Assets
4. What is depreciation? which method of depreciation our organization following
5. What are the factors that cause depreciation
6. Write the depreciation percentage for the following
a) Lines & Wires
b) Installation Test Equipment
c) Computers
d) Furniture
e) Electrical fittings & Home Appliances
f) Motor Vehicle
Write True/False
7. For Capitalization of assets Completion Certificate is to be issued
8. It is Imposed to provide depreciation for inventories of work in progress
9. Assets is capitalized as soon as the work is commissioned & Management
certificate is issued
10. Land & Old Painting Depreciate