THE CONCEPTUAL

FIXED ASSET SYSTEM

What is Fixed Assets?
◦Fixed assets are the property, plant, and
equipment used in the operation of a
business.
◦Examples of fixed assets include land,
buildings, furniture, machinery, and motor
vehicles.
Fixed Asset System
◦Fixed asset system processes transactions
pertaining to the acquisition, maintenance,
and disposal of its fixed assets.
 The specific objectives 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.
Difference between Expenditure
Cycle and Fixed Asset System

Expenditure Cycle Fixed Asset System

• It processes routine • It processes non-routine
acquisitions of raw material transactions for a wider
and finished goods group of users in the
inventories. organization.
• It treat inventory • It capitalize fixed assets
acquisitions as an expense that yield benefits for
of the current period. multiple periods.
 THE LOGIC OF A
FIXED ASSET SYSTEM
Introduction
◦The process involves three categories
of tasks:
◦Asset Acquisition,
◦Asset Maintenance, and
◦Asset Disposal
Asset Acquisition
◦ It usually begins with the departmental manager (user)
recognizing the need to obtain a new asset or replace
an existing one.
◦ The receiving department delivers the asset into the
custody of the user/manager rather than a central store
or warehouse.
◦ The fixed asset department, not inventory control,
performs the record-keeping function.
Asset Maintenance
◦ It involves adjusting the fixed asset subsidiary account
balances as the assets (excluding land) depreciate
over time or with usage.
◦ It also involves adjusting asset accounts to reflect the
cost of physical improvements that increase the asset’s
value or extend its useful life.
◦ It must promote accountability by keeping track of the
physical location of each asset.
Asset Disposal
◦ It begins when the responsible manager issues a request
to dispose of the asset.
◦ 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.