Introduction:

Most of stakeholders take very seriously on the correctness and accuracy of business reports and financial statements. One of the reasons is that they use these report to controls that business as well as making business decisions. Fixed assets are that reports the balance sheet of every business normally have the material values compare to others assets.

Therearefore, the correctness of assets is very importance for both accountants and auditors. There are many controls that used by accountant or fixed assets controllers to assure that the reporting fixed assets are reflecting their fair value, physical conditions, and maximize fixed assets conditions.

Performing regular fixed assets reconciliation is one of the most importance process and control the assurance the accuracy and existence of fixed assets that being reported in balance sheet.

Fixed assets:

Fixed assets are the assets long term assets like belonging to and used by entity everyday for it business. Those assets are building, land, office furnitures, office equipments, vehicles, cars, computers equipments etc. In balance sheet, fixed assets are reported at the reliable value. The values of assets are decreased due to depreciation as well as impairment.

Reconciliation

Reconciliation is an accounting process to compare to compare two sets of records to ensure the figures are in agreement and are accurate. Reconciliation is an important process to determine the money trail.

The statement of fixed assets reconciliation shows summary of book value, credits and debits to fixed assets accounts and accumulated depreciation which is vital in reconciling balance sheet and the register of fixed asset.

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The fixed asset reconciliation statement generally deals with the following on broader horizon:

  • Whether the depreciation has been properly charged or not.
  • Whether the addition of new assets to the particular accounts is justifiable or not.
  • Whether the disposal of assets has been correctly booked or not.
  • Whether the fixed assets show the proper value as on the closing date or not after taking various adjustments.

Above list is only indicative list and there is much more complication involved in preparing the statement. The reconciliation statements are prepared by the large corporate entities dealing in billions and are generally asset-heavy backed enterprises.

Many large organizations use excel or they have their own SAP to prepare fixed assets reconciliation. They also have their own standards and guidelines to prepare and reconcile the fixed assets.

However, the steps are more or less same in the organizations. Let us know discuss the steps in brief to perform and prepare fixed assets reconciliation statement:

1) Previous Year Balances

  • Firstly, the closing balances of the previous year fixed assets balance from balance sheet shall be brought forward.
  • The depreciation rates applied and useful lives of asset used in the preparation should be kept handy for ready references

2) Current Year Purchases and Disposals

  • This can be verified through the preparation of fixed assets register where the date of placement and date of removal of asset from the performance are noted.
  • The balances of amounts of purchases and disposals can be verified from the invoices and should be cross checked for authorization.
  • The ancillary costs such as shipment and delivery and installation and set up costs needs to be ascertained and checked whether they are capitalized or not.
  • If the assets are in construction, capitalization of interest needs to be checked.
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4) Useful lives, impairment and depreciation:

  • The useful lives of asset can be revised if there is higher or lesser deterioration in performance of the asset. This is done by independent evaluator in case of large assets.
  • If there is permanent decline in the value of the assets, impairment has to be provided for. This has to be reconciled along with guidelines prepared by the organization and the accounting standards applicable to them.
  • The depreciation rates are applicable as per the regulations or in their absence, as per guidelines of the organization. The depreciation rates for current year purchases and disposals need to be closely checked and reconciled.

5) Physical verification of assets and logs:

  • The internal control systems make it mandatory to check the assets physically. This is done to check at their health status and how they are maintained to their original condition.
  • The logs shall be checked to know the actual hours the assets are put to use.

6) Closing Balances:

  • After all the verification of accounts and balances, we arrive at the closing balances which should be reconciled with closing balance as per the books.
  • The reconciliation statement is in nutshell, a double check on the closing balances of the fixed assets.

Here is the short statement of fixed assets impairment for an individual asset.

Fixed Asset A
Nature of Asset  
Useful Life X
Depreciation rate X
   
Opening Balance as on 01.01.2019 XX
Purchases X
Disposals (X)
Closing balances as on 31.03.2020 XX
Depreciation X
Accumulated depreciation till date (X)
Provision for Impairment (X)
Written down value of asset on 31.03.2020 XX