Mastering Fixed Asset Register Compliance with Accounting Standards

Welcome, future commerce wizards and seasoned Chartered Accountants! Today, we delve into the realm of Fixed Asset Register (FAR) compliance with accounting standards. Fixed assets aren’t just numbers on a balance sheet; they’re the backbone of your business. Whether it’s that swanky office in Mumbai or the fleet of delivery trucks zipping through Delhi, understanding and maintaining your fixed asset register is crucial.

Why Bother with a Fixed Asset Register?

Imagine running a factory in Pune. You need to keep track of every machine, from the massive lathe to the tiniest drill. A well-maintained FAR helps you do just that. It records the purchase date, cost, useful life, and depreciation of each asset. Not only does this help in financial reporting, but it also ensures you comply with Indian accounting standards, like AS 10 and Ind AS 16.

The Basics: What Goes into a Fixed Asset Register?

Let’s break it down:

Asset Identification Number: Like an Aadhaar for your assets.

Description: What is it? A delivery van, a computer, a building?

Location: Where is it located? Bengaluru office? Chennai factory?

Purchase Details: Date of purchase, vendor details.

Cost: Initial cost, installation charges, everything included.

Depreciation: The wear and tear over time.

Example: Your Company buys a delivery van for ₹10, 00,000. Installation and registration cost an additional ₹50,000. So, the total capitalized cost is ₹10, 50,000. You’ll record this in your FAR and apply the relevant depreciation method.

Compliance with Indian Accounting Standards

For the uninitiated, Indian Accounting Standards (Ind AS) are a set of standards notified by the Ministry of Corporate Affairs. They are aligned with International Financial Reporting Standards (IFRS).

AS 10: Property, Plant, and Equipment: This standard requires that fixed assets are stated at cost less accumulated depreciation.

Example: If your machinery in Ahmedabad is purchased for ₹20,00,000 and has an expected life of 10 years, you need to depreciate it over these 10 years systematically.

Ind AS 16: Property, Plant, and Equipment: Similar to AS 10 but with more details on component accounting and revaluation.

Example: If a part of your manufacturing plant in Surat (say the HVAC system) needs to be replaced every 5 years, it should be accounted for separately.

Practical Steps to Ensure Compliance

Regular Updates: Keep your FAR updated. Every new purchase, sale, or disposal should be recorded immediately.

Example: If you sell an old generator in Hyderabad, remove it from your FAR and update your books.

Periodic Verification: Conduct physical verification of assets periodically. Match them with the records in your FAR.

Example: If your Kolkata office lists 50 computers, make sure there are actually 50 computers physically present.

Depreciation Methods: Use appropriate depreciation methods as per the standards. Straight-line method is common, but sometimes reducing balance method might be more suitable.

Example: For a rapidly depreciating IT asset like a server in your Gurgaon office, reducing balance method might better reflect its decreasing value.

Revaluation: If you revalue your assets, ensure it’s done consistently and recorded correctly.

Example: If the land your Mumbai office sits on has appreciated significantly, revalue it and update your FAR and balance sheet.

Common Pitfalls and How to Avoid Them

Ignoring Minor Assets: Small assets, if numerous, can add up. Don’t ignore them.

Example: Office chairs in your Jaipur branch. Each might be inexpensive, but collectively, they represent a significant investment.

Inconsistent Depreciation: Applying different depreciation rates for similar assets can lead to confusion and non-compliance.

Example: If your computers in the Chennai office depreciate at 15%, make sure all similar assets follow the same rate.

Not Updating for Disposals: Assets that are sold or scrapped must be removed from the FAR promptly.

Example: The old photocopier in your Nagpur office that’s been sold should no longer appear in your register.

Questions to Understand your Ability

Q1.) What is the main purpose of Fixed Asset Register?

A) Recording of day to day transactions

B) To track fixed assets

C) Calculating Profit and Loss

D) Monitoring Stock levels

Q2.) Which accounting standard deals with Property, Plant, and Equipment?

A) AS 7

B) Ind AS 18

C) AS 10

D) AS 2

Q3.) What should be done when an asset is sold?

A) Increase its depreciation

B) Record it in the profit and loss account

C) Remove it from the Fixed Asset Register

D) Ignore it

Q4.) Which method of depreciation might be more suitable for rapidly depreciating IT assets?

A) Straight-line method

B) Sum-of-the-years-digits method

C) Reducing balance method

D) Unit of production method

Q5.) How should revaluation of assets be handled in the Fixed Asset Register?

A) Revalued inconsistently

B) Done randomly

C) Revalued consistently and recorded

D) Ignored completely

Conclusion

Being in compliance with standards there and keeping the Fixed Asset Register intact is not as simple as it seems. It has to do with the efficiency, credibility and public accountability of your financial records. Well then, stand to it readers, wade through these registers and mind your assets!