What is a Fixed Asset ?
Fixed Assets are those such as land, machines, office equipment, buildings, as well as intangible assets such as patents, trademarks, copyrights, etc. held for the purpose of production of goods or rendering of services and are not held for the purpose of sale in the ordinary course of business.
What is a Fixed Asset Register ?
A Fixed Asset Register is a statement of an organization which shows the assets that it owns. This register will document:
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what the asset is,
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where the asset is located,
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who is responsible for the asset,
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what the asset cost,
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and what the expected resale value is.
In addition, a good Fixed Asset Register will also show each asset’s depreciation since its purchase date, clearly stating its current value.
Why is it important to have a Fixed Asset Register ?
There are financial consequences to not maintaining an accurate asset register. Every business should know at any given time where their assets are and in what condition they are in. The reasons can be summarized as follows:
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From a legal point of view it is a statutory requirement of the Companies Act and one of the areas external auditors MUST and DO focus on.
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Asset tracking can prevent theft and extend the life of assets through maintenance.
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Allows for computation of value depreciation via a financial system for tax and insurance purposes.
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Helpful for business management purposes, by producing reliable reports and KPIs
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Allows for the calculation of Fixed Asset Turnover.
What is Fixed Asset Turnover ?
While many popular metrics measure the degree to which a business is profitable, efficiency metrics measure how well a company uses what it already owns to generate profits. The fixed asset turnover ratio is one such metric:
Fixed Asset Turnover = Revenue / Net Fixed Assets
In general, a high ratio indicates that the company is making good use of its existing assets. A declining ratio is an indicator either of low sales or that the business is over-invested in plant, equipment, or other fixed assets.
Thus, if the Fixed Asset Register of a business is inaccurate or incomplete, it’s Fixed Asset Turnover cannot be calculated accurately.
Is my Asset Register “healthy” ?
Are my assets properly tagged ?
Why should profound focus build or fix my Asset Register ?
