I often get asked if companies should approach their asset tracking and depreciation by bulking items together (like that of their out-sourced CPA firm — general statement) or individualize them out as their own separate line item. Good question, here is my answer:
- Let’s say you have $50,000 in furnture and fixtures on your books (internal/GAAP) which may represent 35 items, and that your out-sourced Tax Accountant/CPA Firm has $50,000 in Furniture and Fixtures for your Tax and other federal depreciation books too. NOTE: let’s hope you or your out-sourced CPA firm have an actual quantity count for that $50k.
- You go and perform a physical inventory (or have one completed for you) and find that your count of your furniture and fixtures is only about 25 items TOTAL.
- You will now need to perform a partial disposal of 10 F&F items that were NOT FOUND during your physical asset inventory.
- Keep in mind, since all you have is a count of 35 items but you only found 25 — common calculation for a partial disposal would to take the $50,000 and divide that by 35 = $1,428 per asset. Which would lead most to believe, they need to write off $14,286 (rounding) on their books.
My WHAT IF Scenario
- What if out of those 10 missing assets, one of those were a big ticket item that took up about 25% of the total cost of your $50,000? That would be roughly, $12,500 for that ONE item!
- You just spread out an average cost across 10 items for $14k write off, when actually…. That amount could (theoretically) be more like $25,000 or more depending on the individual item.
WHAT HAVE WE LEARNED
Take control of your fixed asset management and itemize those items out whenever possible! This process will benefit your bottom line and make your job of managing your fixed assets a much more simple task.
Not to say that you should never bulk your items together, there are best practices with this process (another subject for a BLOG post), but this is the quick n’ dirty answer.