An asset register refers to a statement of resources owned and controlled by a person or a business. In most cases, an asset register shows the cost, date of purchase, suppliers name and address, serial number, internal reference number, depreciation rate and method, nominal account numbers, insurance details, location of the asset, date of disposal, gains or losses on disposal as well as the departments that use the asset. Below are helpful tips on how to prepare an asset register.
Have a separate record for each fixed asset
The fixed account record should capture information about the cash paid for each asset. The record should calculate all the periodic depreciation expenses as well as track the current book value of the assets. The book value is the acquisition cost of the asset less the sum of the accumulated depreciation.
Select a depreciation period for each asset. This is the period when the value of the asset will probably be expensed. During this period, a percentage of the value of the asset is converted into an expense after each accounting period. Use the depreciation method to determine the amount of the value of the asset that should be expensed during each accounting period. The depreciation period of an asset is calculated based on a projection of its useful life. At times, this period is guided by tax regulations.
Select an appropriate depreciation method
Depreciation methods are dictated by tax regulations in a similar manner to the depreciation period. Straight line is one of the best methods used to depreciate assets. This method involves depreciating a constant percentage value of the asset during each accounting period. For instance, an asset with a depreciation period of five years will have 20 percent of the value of the asset converted into expense during each year.
Other Depreciation Methods
Apart from straight line depreciation methods, there are other common methods of depreciation. These methods may include:
- Sum of the Year Digits Depreciation The depreciation charge keeps declining by a constant amount with regard to the progress of the asset’s life.
- Reducing Balance Depreciation The depreciation expense decreases at a constant rate in line with the life of the asset.
- Units of Activity Depreciation The depreciation charge changes during each period depending on the level of activity of the asset.
Accelerated methods of depreciation increase the expense realization of an asset in a short period. The net income during the initial depreciation period of an asset is therefore lowered. This results in the shifting of the depreciation expense from the later to the earlier periods. Tax expenses are also deferred to the later periods. However, accelerated depreciation rapidly reduces the shareholder equity of an asset. The chosen method of depreciation cannot be changed once the asset has been placed into service.
Finally, you should conduct regular audits to determine the accuracy of your fixed asset register. Audits will guide you in determining assets that have been stolen, lost or have become non-functional. Such assets do not add value to an organization. They should be written off from the remaining book value of the asset register.