Professional Documents
Culture Documents
CH 06
CH 06
Cost Salvage
value
Time (useful life)
DFD of Fixed Asset System
Objectives of the FAS
• Process the acquisition of fixed assets as needed
and in accordance with formal management approval
and procedures
• Maintain adequate accounting records of asset
acquisition, cost, description, and physical location in
the organization
• Maintain accurate depreciation records for
depreciable assets in accordance with acceptable
method
• Provide management with information to help it
plan future fixed asset investments
• Properly record the retirement and disposal of
fixed assets
Asset Acquisition
• Generally begins with a department manager
determining that an old fixed asset needs to
be replaced or the need for a new fixed asset
is warranted
• The manager fills out a purchase
requisition and may require a signature for
items over a pre-specified limit.
• The fixed asset department performs the
record-keeping function.
Asset Maintenance
• Involves adjusting the fixed asset subsidiary
account balances as the assets depreciate
over time (or deplete with usage)
• Depreciation calculations are internal
transactions that the fixed asset system must
process based upon a depreciation schedule.
• Physical improvements must also be
recorded to increase the subsidiary account
balance and depreciation schedule.
Asset Disposal
• At the end of the useful life or an earlier
disposition of the asset, the asset must
be removed from the records.
• The disposal requires a disposal
request and disposal report as source
documents to remove the asset from the
records and the depreciation schedules.
Computer-Based Fixed Asset
System--Acquisition
• Acquisition - the
receipt of the asset is
recorded, along with
information such as its
useful life, depreciation
methods, etc. and the
ledgers are
automatically updated
Computer-Based Fixed Asset
System--Maintenance
• Computerized FAS will automatically:
– calculate current period’s depreciation
– update the accumulated depreciation and
book-value fields in the subsidiary records
– post the total amount of depreciation to the
affected general ledger accounts
• depreciation expense and accumulated
depreciation
– record the depreciation transaction by adding
a record to the journal voucher file
Computer-Based Fixed Asset
System--Disposal
• Computerized FAS will automatically:
– post an adjusting entry to the fixed asset
control account in the general ledger
– record any loss or gain associated with the
disposal transaction
– prepare a journal voucher record
Controlling the Fixed Asset
System
• Authorization should be formal and explicit
because of high cost of PPE:
– acquisitions
– changes in depreciation methods
• Supervision - threat of misappropriation
requires constant management supervision:
– theft--secure the physical location of assets
– misuse--monitor on-the-job activities
Controlling the Fixed Asset
System
• Independent Verification Controls -
the internal auditor should periodically
verify FAS records:
– the reasonableness of factors used in
decisions (useful life, discounts, budgeting
model)
– location, condition, and fair value of the fixed
asset records in the subsidiary ledger
– the programming logic for automatic
calculations (depreciation)