You may want to use Fixed Asset Management if:
you want to track the value of fixed assets
you want to track fixed asset maintenance/repair expenses and upterms
you want to calculate and record the depreciation expenses of fixed assets
you want to record the disposal/sale of fixed assets and any net gain or loss
Use of the Fixed Asset module is optional. All of the GL postings it makes automatically can be done manually (for example a depreciation expense can be entered with a journal entry) but you would miss out on the benefits of fixed asset reporting.
What you'll find:
General Ledger Reports: Fixed Assets
Fixed Asset
Fixed Asset Book Value
Fixed Asset Summary
General Ledger Data Exports: Fixed Assets
Fixed Asset List
Fixed Asset Overview
in this section
What are Fixed Assets?
Fixed Assets are tangible assets (like land, buildings, and equipment) that are owned by your company and used in the generation of income. Fixed Assets are expected to benefit your business for a period of longer than one year.
What is Fixed Asset Management?
Fixed Asset Management is the process of tracking the value of fixed assets year after year. It starts with the purchase value of the asset, allows you to apply maintenance expenses and upterms to the asset, calculates and applies the depreciation expense to the asset, and when you finally sell (or otherwise dispose of) the asset it calculates the gain or loss and removes any residual value of the asset from your GL.
Accurate tracking of fixed assets is important because their value affects the value of your business, your financial statements, and your tax bill.
What is Salvage Value?
The salvage value is what the fixed asset will be worth at the end of its expected life. The salvage value might be what you could sell it for as used equipment when you're done with it, or it could be the scrap metal value, or it could be $0 if the asset will have no value.
What is Depreciation?
Tax laws state that because fixed assets will provide value for many years, the purchase price cannot be expensed entirely in the year it was bought. Only a certain portion of its value can be expensed during each year of its expected useful life. This expense is called Depreciation. The total depreciation from when the fixed asset was new is called the Accumulated Depreciation.
Amortization refers to spreading an intangible asset's cost over that asset's useful life. Because Fixed Assets are tangible assets, agrē calculates depreciation not amortization.
Methods of Calculating Depreciation
agrē has two automated methods of calculating depreciation. You can also choose to depreciate a fixed asset manually (agrē won't suggest any depreciation values for this method; it relies on you to calculate them).
When calculating depreciation the half year rule may
apply. The half-year convention assumes that all new fixed assets
are purchased at the mid-point of the fiscal year (as no business
buys all of its new assets on the first day or on the last day) and
allows 50% of the full annual depreciation for the first
year; it then allows for the full-year expense going forward.
If the half year rule is used for Year 1, it must be manually unchecked
before calculating depreciation for Year 2.
Check with the Canada Revenue Agency
(search for "capital cost allowance") or your accountant
for more information.
Straight Line
Straight Line depreciation is the most simple method of calculating depreciation. The assets depreciates by the same dollar amount for every year of its useful life.
Declining Balance (also called Accelerated Depreciation)
Depreciation methods that allow for a greater depreciation charge in the first year of an asset's life and decreasing depreciation in subsequent years are called accelerated depreciation methods. This may be a more realistic reflection of an asset's actual expected benefit: many assets are most useful when they are new and become less useful as they age. One popular accelerated method is the declining-balance method. Under this method the book value is multiplied by a fixed rate.
The most commonly used rate is double the straight-line rate. For this reason, this technique is referred to as the double-declining-balance method.
Using the same asset as above, with a $16,000 original cost, a $1,000 salvage value, and 5 years of useful life. First, calculate straight-line depreciation rate. Since the asset has 5 years useful life, the straight-line depreciation rate equals (100% / 5 years) = 20% per year. With double-declining-balance method, as the name suggests, double that rate, so a 40% depreciation rate is used. The example below illustrates the double-declining-balance method of depreciation.
When using the double-declining-balance method, the salvage value is not considered in determining the annual depreciation, but the book value of the asset being depreciated is never brought below its salvage value, regardless of the method used. The process continues until the salvage value, or the end of the asset's useful life, is reached. In the last year of depreciation a subtraction might be needed in order to prevent book value from falling below estimated salvage value.
Manual and Mixed Depreciation
Since double-declining-balance depreciation does not always fully depreciate an asset by the end of its useful life, some retailers may also calculate a straight-line depreciation for each year, and apply the greater of the two. This has the effect of converting from declining-balance depreciation to straight-line depreciation at a midpoint in the asset's life.
What is Book Value?
Book value of a fixed asset is calculated by taking the initial purchase cost, adding any Value Adjustments, and subtracting the accumulated depreciation (amount of depreciation expensed so far). Book value cannot be less than $0.
What is Market Value?
Market value is the price you would receive if you sold the asset today on the open market. Market value may be the same, lower, or higher than the book value or than salvage value. In the real world, assets don't always depreciate at the same rate as the tax rules say they do.
What are Fixed Asset Value Adjustments?
Value Adjustments increase the value of a fixed asset. If you add a fixed sprayer tank to a flat deck, that's a Value Adjustment. Value Adjustments become part of the fixed asset. They are not depreciated separately; they are depreciated as part of the fixed asset as a whole.
What are Fixed Asset Expenses?
Fixed Asset expenses are regular expenses tracked against the fixed asset. These would include expenses like oil changes or engine repairs for a delivery vehicle. Fixed Asset Expenses do not increase the value of the fixed asset.