In today’s challenging economic scenario, companies have been forced to view business profitability not just as an outcome of sales turnover but also better management of resources. This evident change has brought to the fore the importance of fixed asset management, a business function that most companies tend to be fairly complacent about, and often ill-equipped to manage. The article discusses the relevance of fixed asset management, not merely as a function of statutory compliances, but as a tool for cutting costs and increasing business viability.
Why Fixed Asset Management (FAM)?
While Fixed Assets are a significant item on most companies’ balance sheets and are in fact the means of doing business, they are not liquid i.e. easily converted into cash. This probably explains why most companies lose sight of these assets.
Nevertheless all organisations are required to keep track of their fixed assets- their numbers, location, their condition- depreciating value and maintenance. Known as Fixed Asset Management (FAM), the job however is easier said than done.
Understanding the importance of FAM and related pitfalls...
- Custodial responsibility- Fixed assets are essential for the proper functioning of an organization, as such the management of an organization has a custodial responsibility towards its shareholders for the control and upkeep of its fixed assets.
- Statutory compliance- Given the importance of fixed assets in any business, there are certain statutory/legal compliances that need to be met. However companies tend to focus more on stock inventory, neglecting the fixed asset register.
- Even among companies that aspire towards correct financial reporting of fixed assets, certain snags invariably appear. For instance- companies often fail to take stock of the depreciating value of an asset over the years (often leading to over depreciation in the account books, particularly if Straight Line Depreciation Method is used). Also if an asset is disposed or written off, it needs to be accounted for appropriately. Moreover companies often hold assets that are unaccounted for. These may be in the form of bundled goods, which do not have a direct payment receipt. These too need to be brought to the books or taken note of.
Advantages of FAM
- When executed correctly FAM helps cut costs considerably. For instance an accurate fixed asset register will help bring down insurance premium for an organization by correctly reporting the value of its fixed assets after accounting for depreciation.
- Often expensive imported equipment comes bundled with essential spares. These however are not accounted for in the fixed assets register and may ultimately get lost in the colossal warehouses companies maintain. By bringing the spares to book, FAM prevents unnecessary expenditure of having to import new spares, whenever they need to be replaced.
- An up-to-date fixed asset register backed by a regular physical verification exercise also helps reduce the incidence of theft and misuse considerably
- FAM also means deliberate tracking of assets under warranty, annual maintenance contract and insurance. Thus ensuring that organisations are not caught off guard in case of break down of equipment, etc., further averting undue expenses.
- Appropriate valuation of assets also translates to security for acquiring funds if the need arises.
- Organisations are also able to make informed decisions pertaining to scrapping or replacement of assets
Organisations, irrespective of their nature or size, face considerable challenges in keeping accurate records of their fixed assets. Lacking the essential resources and skills for the management of their fixed assets, they often commit errors that result in considerable costs and have a direct implication on business profitability; thus making a strong case for outsourcing Fixed Asset Management.
SKP has developed an array of services to allow clients the benefit of complete FAM solutions. From updation of fixed assets register to reconciliation as per Companies Act and Income Tax Act. From physical verification of fixed assets at various company locations to tagging and labelling of individual assets. From reconciliation of the physical count of fixed assets to complete updation of Cost Centre, Location, Machine Serial No. etc., after physical verification in the Fixed Assets Register. From on-going maintenance of Fixed Assets Register to providing accurate reports of fixed assets as well as reports of missing assets and timely alerts of AMCs and insurances up for renewal. We have also developed a customized software that further enhances the efficacy of our meticulous FAM practices. Additionally our trained FAM team is backed with the experience of over a 100 assignments spread across industry verticals & geographic locations.
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