THE CONCEPTUAL

FIXED ASSET SYSTEM

What is Fixed Assets?
Fixed assets are the property, plant, and
equipment used in the operation of a
business.
Examples of fixed assets include land,
buildings, furniture, machinery, and
motor vehicles.
Fixed Asset System
Fixed asset system processes
transactions pertaining to the acquisition,
maintenance, and disposal of its fixed
assets.
 The specific objectives are to:
1. Process the acquisition of fixed assets as needed and in
accordance with formal management approval and procedures.
2. Maintain adequate accounting records of asset acquisition,
cost, description, and physical location in the organization.
3. Maintain accurate depreciation records for depreciable assets
in accordance with acceptable methods.
4. Provide management with information to help plan for future
fixed asset investments.
5. Properly record the retirement and disposal of fixed assets.
Difference between Expenditure Cycle and Fixed
Asset System

Expenditure Cycle Fixed Asset System

It processes routine It processes non-routine
acquisitions of raw transactions for a wider
material and finished group of users in the
goods inventories. organization.
It treat inventory It capitalize fixed assets
acquisitions as an expense that yield benefits for
of the current period. multiple periods.
THE LOGIC OF A
FIXED ASSET
SYSTEM
Introduction
The process involves three
categories of tasks:
Asset Acquisition,
Asset Maintenance, and
Asset Disposal
Asset Acquisition
It usually begins with the departmental manager
(user) recognizing the need to obtain a new asset or
replace an existing one.
The receiving department delivers the asset into the
custody of the user/manager rather than a central
store or warehouse.
The fixed asset department, not inventory control,
performs the record-keeping function.
Asset Maintenance
It involves adjusting the fixed asset subsidiary
account balances as the assets (excluding land)
depreciate over time or with usage.
It also involves adjusting asset accounts to reflect
the cost of physical improvements that increase the
assets value or extend its useful life.
It must promote accountability by keeping track of
the physical location of each asset.
Asset Disposal
It begins when the responsible manager issues a
request to dispose of the asset.
The disposal options open to the firm are to sell,
scrap, donate, or retire the asset in place.
A disposal report describing the final disposition of
the asset is sent to the fixed asset accounting
department to authorize its removal from the ledger.