Fixed Assets
Fixed assets are the tangible long-term assets you require to operate your business. For example, land, buildings, furniture, machinery, equipment or vehicles. You can use Sage 200 Fixed Assets to create and maintain a list of the assets used in your business. You can also delete the details of assets which have been disposed of or whose value has been depreciated to zero (0).
The value of your assets will depreciate over time and you will need to be able to work out the best method of depreciation for each asset. There are two main depreciation methods to choose from: straight line Straight line depreciation is normally used if you forecast that the use of the asset is spread evenly across the time period of its use. The asset's value is reduced by a percentage value based on the initial value, the residual value and the asset life span in years or periods. The value of depreciation remains the same each time. or reducing balance Reducing balance depreciation is normally used if you expect an asset to wear out quickly. The asset's value is reduced by a percentage of the Net Book Value which reflects the asset's current worth, every year or period until it is reduced to a realistic scrap or write off value.. Each of these can be applied annually or each period. Once you know which method you want to apply and set up the details for an asset, Sage 200 manages the depreciation of your assets for you.
It's important to choose your depreciation method carefully as once it has been selected for an asset, the same method should be applied throughout the asset's life. Professional Accounting Standards only let the method be changed if a change would provide a truer view of the financial results and position.
The processes of depreciating and disposing of fixed assets make postings to your Nominal Ledger.
You can also use the fixed asset workspace to investigate and find information about fixed assets that you have already set up. For example, you can find out what your assets are currently worth and when they were last depreciated.
Thinking about an asset code structure
You may want to give some attention to how you structure your fixed assets before you add them. For example, you might want to include the name of the Manufacturer of the asset, but you only have 60 characters for the Code so it might be better to put the Manufacturer name in the Description box.
You can add permitted additional costs that relate to an original asset Code and can be capitalised upon in the following way:
|
Asset Id |
M-50001 |
The Id of the original asset. |
|
Asset Id: |
M-50001/0001 |
The Id of the first enhancement to the original asset. |
|
Asset Id: |
M-50001/0002 |
The Id of the second enhancement to the original asset. |
How depreciation works
The cost of the fixed asset minus the estimated residual value provides the amount that is to be depreciated over the asset's estimated useful life.
Let's take a look at the three elements in that equation:
The cost of the fixed asset
You might think this would be straightforward and you can simply use the purchase value of the asset. However, it can also include amounts incurred in acquiring the asset and any attributable costs in bringing it into a suitable working condition. For example, delivery costs, professional costs (legal or architect fees), costs of site preparation for installation of the asset and stamp duty or importation costs.
It must not include:
- Regular ongoing costs entailed in the care and maintenance of the asset, such as servicing costs.
- The VAT element of the asset purchase.
Note: Whilst you can reclaim the VAT element of such costs in the UK in the normal manner, you cannot capitalise on the VAT element by adding that to the cost of the fixed asset.
The estimated residual value of the asset
When an asset reaches the end of its life, you dispose of it and any amount received from the disposal represents the residual value. In practice it is difficult to estimate this value. If it is unlikely to represent a significant amount, then a residual value of 0 (zero) is assumed, or it could be the scrap value of the asset.
The estimated useful life of the asset
Most fixed assets have a physical life and an economic life. Usually a fixed asset ages physically through its usage and the passage of time, and there comes a time when the asset is fully exhausted.
However, there are times when an asset may have gone beyond its best-by-date economically, although it has not yet reached the end of its physical life. This could be through technological progress or because the demand for the goods it produces has changed.
Straight Line depreciation
Straight line is appropriate if you forecast that the use of the asset is spread evenly across the time period, for example, the use of a temporary prefabricated building.
The asset's value is reduced by a percentage value that is based on the Initial Value, the Residual Value and the Asset Life span in years or periods until the Net Book Value is reduced to the Residual Value (which may or may not be zero). The value of depreciation remains the same each time.
|
Annual Straight Line |
Initial Value - Residual Value / Asset Life in years |
|
Period Straight Line |
Initial Value - Residual Value / Asset Life in periods |
Note: If the calculation pushes the Net Book Value to a value that is less than the Residual Value, the depreciation amount posted is the Net Book Value - Residual Value.
If you enter an asset with an Initial Value of £12000, a Residual Value of £3000, and you want this to be depreciated over a three year period:
| Year | Depreciation Calculation | Depreciation Amount | Net Book Value | |||||
|---|---|---|---|---|---|---|---|---|
| Initial Value | Residual Value |
Asset Life in years |
||||||
|
1 |
12000 |
- | 3000 | / | 3 |
£3000 |
£9000 |
|
|
2 |
12000 |
- | 3000 | / | 3 |
£3000 |
£6000 |
|
|
3 |
12000 |
- | 3000 | / | 3 |
£3000 |
£3000 |
|
If this was by period, the initial value would be divided by the number of periods in the three years, for example 36 if you were using 12 periods per year, in order to give a periodic depreciation amount. In this example that would be £250. Each period that passed the net book value would reduce by that amount
Note: Straight Line depreciation is applicable if the value of the asset is to be reduced evenly over time (e.g. furniture).
Reducing Balance depreciation
Reducing balance is applicable if the value of the asset needs to be reduced quickly at first and more slowly later (e.g. vehicles).
The asset's value is reduced by a percentage of the Net Book Value (which reflects the asset's current worth) every year or period until it is reduced to a realistic scrap or write off value (which may or may not be zero). The value of the depreciation reduces every time. This is appropriate if you expect the asset to wear out quickly.
|
Annual Reducing Balance |
Net Book Value * Annual Depreciation % |
|
Period Reducing Balance |
Net Book Value * Period Depreciation % |
Note: If the calculation pushes the Net Book Value to a value that is less than 0 (zero), the depreciation amount posted is the difference between the Net Book Value and 0 (zero).
If you enter an asset with an Initial Value of £12000, the initial Net Book Price is £12000 and you want to depreciate this over four years, this would be a depreciation of 25% each year.
| Year | Depreciation Calculation | Depreciation Amount | Net Book Value | ||||
|---|---|---|---|---|---|---|---|
| Net Book Value | Depreciation Percent | ||||||
|
1 |
12000.00 |
* | 25 | / | 100 |
£3000.00 |
£9000.00 |
|
2 |
9000.00 |
* | 25 | / | 100 |
£2250.00 |
£6750.00 |
|
3 |
6750.00 |
* | 25 | / | 100 |
£1687.50 |
£5062.50 |
| 4 | 5062.50 | * | 25 | / | 100 | £1265.63 | £3796.87 |
Note: Depreciation of an asset using the Reducing Balance method is higher initially than the Straight Line method and it then reduces over the asset life. Theoretically, using the Reducing Balance method, the book value will never reach zero but for all practical purposes, the write off value of an asset is reached by using a realistic percentage.
Staying with a depreciation method
Remember it is important to choose the depreciation method carefully as you must keep the same depreciation method for the asset over its lifetime. Whilst it is possible to dispose and delete the asset and add it back with a different depreciation method, Professional Accounting Standards would require a good reason for doing this, i.e. on the grounds that the change to the other depreciation method would provide a truer and fairer view of the financial results and position.
Import fixed asset records
If you need to add a number of fixed asset records to your system it might be quicker for you to import their details straight into Sage 200.
In each fixed asset record you must specify:
- Its code.
- A description.
- Its initial value.
- The date on which it was acquired.
You can optionally include:
- The date on which the asset was last depreciated.
- The depreciation method applicable to the asset.
- The net book and residual values.
- The lifespan and depreciation amounts.
- The Profit & Loss and Balance Sheets accounts to which depreciation postings are made.
Are you ready to perform these actions?
Have you completed the necessary setup so that you can perform the actions listed below?
You must have the correct user access permissions to use fixed assets.
Assign feature access to users
Have you thought about a structure for your fixed asset records?
Thinking about an asset code structure
Have you thought about the depreciation methods to use?