The IT manager has a need to ensure that IT equipment is managed well, that the organization always knows how much of what is available, how old each item is, what its value is and where it can be found. The General Manager needs to know the same for all assets, including furniture and office equipment.
The task of the Accountant however, is to provide depreciation entries in the books every month, and to keep track of the book value of each asset after accumulated depreciation has been taken into account . The method of depreciation is not the same for all organizations. The potential of the asset to contribute towards earnings need to be matched with the cost of the asset in the most effective way in order to comply with Generally Accepted Accounting Practices (GAAP).
If for example the life-cycle of an asset is only expected to be 3 years (as is usually the case with IT equipment), and the asset is considered to contribute towards earnings the same every month, then the value of the asset will be depreciated at a fixed rate of 33.3% per year.
An asset that is expected to last longer, but to contribute less and less towards earnings as it ages, may for example require depreciation at 20% per year, but on the book value. This will require that every month after depreciation has been calculated, that the book value will need to be recalculated again, in order to know the new book value to be used towards the following depreciation calculations.
These calculations may be quite straight forward if there are only a few assets, but as soon as there are many assets in one category, with new ones being sold (some at a profit and some at a loss) and additional ones purchased each month, the depreciation and accumulated depreciation calculations becomes more complex. It is however important for auditing purposes that it is done accurately and that records are available of how the calculations were done, hence the need for software to take care of this automatically. Some accounting software includes a separate module to keep track of this.
Here is a list of some fixed asset management software that allows for depreciation calculations:
- BankTEL System (Fixed Asset Management for Banks)
- Paragon System
- Red Moon Solutions
- Fixed Assets CS
- WorthIT Software
* Updated 19 Jan 2010. This article is continued at List of fixed assets and their appropriate depreciation rates.
(yolandek ‘at’ mtn.blackberry.com)