2015 inspire tour: fixed asset management
DESCRIPTION
2015 inspire tour: Fixed asset managementTRANSCRIPT
Fixed Asset Management:
Effects on your Bottom Line
#InspireTour
Our journey in this session….
Fixed asset depreciation
explained
Why does fixed assets depreciation
matter?
Business challenges in
managing fixed asset
depreciation
Finding a better way
#InspireTour
What is a Fixed Asset?
Fixed assets can take the form of buildings,
machinery, computers and other electronic
equipment as well as office furnishings - even
assets that you build, like a hotel.
Fixed assets, also known as "tangible assets" or
property, plant, and equipment (PP&E), is a term
used for assets and property that cannot easily be
converted into cash.
#InspireTour
To depreciate an asset, companies usually follow a three step process:
1. How much did the asset cost?
• Asset cost + all costs directly associated with
the acquisition of the asset
• Examples include delivery/shipping cost, handling
fees, import duties, installation charges etc.
Fixed asset depreciation is systematic allocation of the cost of a fixed
asset over its useful life. The pattern of the annual depreciation charges
should attempt to match the pattern of benefits derived from that asset.
What is a Fixed Asset Depreciation?
#InspireTour
2. How long will it last
• The Physical Life is determined by how long the actual asset will last. Assets wear out, and at the end of the physical life of a product, the value is assumed to be 0.
• The Economic Life or Useful Life of an asset refers to the period in which the asset is expected to be used in the business. This can be shorter than the physical life, and at the end of it’s useful life the product may have a Residual Value that can be re-covered in the liquidation of the asset.
3. How do I write it off?
• Choose the most beneficial depreciation method for your financial reporting.
• Allocate the costs of fixed assets over the estimated useful life for tax reporting.
Why it matters!
#InspireTour
Why fixed asset depreciation matters!
• Managing your fixed asset data
The error prone process of managing your fixed assets
manually can lead to significant tax overpayments.
• Selecting the best depreciation method
Choosing the most favorable allowed depreciation method
directly effects your financial statements.
• Regulatory Compliance
The always changing regulatory environment makes it difficult to
stay up to date, therefore creating a compliance risk.
Incorrect information and errors in
fixed asset management are a near
universal problem, resulting in
unnecessary tax
overpayments of 8% - 20%
#InspireTour
Managing your fixed asset data
#InspireTour
Using manual processes and spreadsheets can be challenging!
• Complicated formulas and calculations must be created and maintained
• As assets are added or retired, manual adjustments have to be made
• Manual correction and consolidation of multiple spreadsheets is time-consuming and error-prone.
• No audit trail about who changed what or when
What is a Fixed Asset Data Management?
How are you managing your fixed assets today?
#InspireTour
65% of fixed asset data is incomplete,
inaccurate, or missing, and up to 5% of all
spreadsheet formula cells contain errors. Source: Asset Management Resource, AMR
On average, 15% - 30% of the fixed assets on a companies’ books
have actually been retired, sold, discarded or are not in use. But
these companies are still paying tax and insurance for those assets.Source: Scott Swarts, Paragon Systems
How well does this work for you?
Choosing the best
depreciation method
for your business
#InspireTour
Straight-line depreciation is the simplest and most often used method.
1. The company estimates the residual value of the asset at the end of it’s
useful life.
2. The company will charge the same amount to depreciation each year
over that period.
ExampleCost: $15,000Useful life: 5 yearsResidual Value: $2,500
Depreciation Methods
$15,000 - $2,500 = $2,500 5 annual
depreciation
#InspireTour
Companies using the declining balance depreciation method expense the asset at a constant rate, which results in declining depreciation charges each successive period.
Double declining balance is a type of declining balance depreciation in which depreciation rate is double the straight-line depreciation rate.
Depreciation Methods
Example
Cost: $12,500
Useful life: 5 years
Residual Value: $0
Straight Balance Depreciation Rate: 20%
Double Declining Depreciation Rate: 40%
Year Double Declining Depreciation
Asset Year-End Book Value
1$12,500 x 40%
= $5,000
$12,500 - $5,000
= $7,500
2$7,500 x 40%
= $3,000
$7,500 - $3,000
= $4,500
#InspireTour
Straight-Line Double Declining-Balance
YearAnnual
DepreciationYear-End Book Value
Annual
Depreciation
Year-End Book
Value
1$12,500 x 20%=
$2500
$12,500 - $2,500 =
$10,000
$12,500 x 40% =
$5000
$12,500 - $5,000 =
$7,500
2$12,500 x 20%=
$2500
$10,000 - $2,500 =
$7,500
$7,500 x 40% =
$3,000
$7,500 - $3,000 =
$4,500
3$12,500 x 20%=
$2500
$7,500 - $2,500 =
$5,000
$4,500 x 40% =
$1,800
$4,500 – 1800 =
$2,700
4$12,500 x 20%=
$2500
$5,000 - $2,500 =
$2,500
$2,700 x 40% =
$1,080
$2,700 - $1080 =
$1,620
5$12,500 x 20%=
$2500
$2,500 - $2,500 =
$0
$1,620 x 40% =
$648
$1,620 - $648 =
$972
#InspireTour
• Annuity Depreciation is not based on time, but on a level of activity, for example miles driven for a vehicle, or a cycle count for a machine. When the asset is acquired, its life is estimated in terms of this level of activity.
• Under the Units-of-Production Depreciation method, the useful life of the asset is expressed in terms of the total number of units expected to be produced by the asset.
• The Group Depreciation Method is used for depreciating multiple-asset accounts using straight-line-depreciation method. Assets must be similar in nature and have approximately the same useful lives.
• Sum of Years Digits Method
• Units of Time Depreciation
• Composite Depreciation Method
Other Depreciation Methods
#InspireTour
Maintaining regulatory compliance
#InspireTour
The challenge of regulatory compliance
• A business must ensure compliance with all governmental rules and regulations.
Do you know the meaning of:
• SOX
• MACRS
• IFRS
• IRC of 1986
• IAS 16
#InspireTour
How MACRS works
• The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system in the United States.
• Assets are divided into classes by type of asset. The cost of the asset are recovered over a specified life by annual deductions for depreciation.
• The Internal Revenue Service (IRS) publishes detailed tables of lives by classes of assets.
• The deduction for depreciation is computed under one of two methods (declining balance switching to straight line or straight line) at the election of the taxpayer, with some limitations.
Finding a better way
#InspireTour
You could use a spreadsheet, or…..
…you could automate fixed asset
management with a software solution
- like Sage Fixed Assets or Sage
Fixed Assets Online – solutions that
are specifically designed to help take
the headache out of fixed asset
management and fixed asset
depreciation.
#InspireTour
Sage Fixed Assets:
we’ve got you covered
• Over 300,000 tax rules already built in
• MACRS compliant
• Continuous monitoring of tax law changes
#InspireTour
Sage Fixed Assets Online
• Sage Fixed Assets Online is an online service that enables companies to effectively manage the depreciation of their fixed assets. It provides the necessary depreciation calculations for tax reporting, basic asset tracking, and asset reporting.
• SFAO is delivered as a cloud service– Anytime, anywhere access– No local server installation – Automated updates and maintenance
• SFAO is delivered under a subscription license– One-time activation fee $99– Monthly subscription fee starting at $19.99 per month
#InspireTour
Stay connected!
We’re here to answer your questions!
Visit: www.SageFixedAssets.com
Call us at: 800-368-2405
Download our eBook: SageFixedAssets.com/ebook
Like us on Facebook: https://www.facebook.com/SageFixedAssets
Follow us on Twitter: https://twitter.com/SageFixedAssets
Thank you!