Best Practices

Comprehensive guidelines for fixed asset management including policies, procedures, and troubleshooting.

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Capitalization Policy

Threshold Guidelines

CAPITALIZATION DECISION FRAMEWORK
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THRESHOLD TEST:
  Is item cost ≥ $5,000 (or company threshold)?
  │
  ├─ NO  → EXPENSE immediately
  │
  └─ YES → Continue to USEFUL LIFE test

USEFUL LIFE TEST:
  Will item be used > 1 year?
  │
  ├─ NO  → EXPENSE immediately
  │
  └─ YES → CAPITALIZE as Fixed Asset

Common Thresholds

Organization Size	Typical Threshold
Small business	$1,000 - $2,500
Mid-size company	$2,500 - $5,000
Large enterprise	$5,000 - $10,000
Government/Non-profit	Per regulations

What to Capitalize

CAPITALIZE	EXPENSE
Purchase price	Repairs (maintain)
Sales tax	Minor parts replacement
Freight/delivery	Training costs
Installation	Operating supplies
Site preparation	Routine maintenance
Testing costs	Extended warranties
Import duties	Insurance (ongoing)

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Asset Lifecycle Management

Acquisition Best Practices

Practice	Description
Proposal review	Review proposals within 5 business days
Consistent naming	Use standardized naming conventions
Complete information	Fill all relevant fields
Document sources	Link to PO, invoice, or approval
Physical tagging	Apply asset tags for tracking

Naming Conventions

RECOMMENDED NAMING FORMAT
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Format: [Type]-[Location]-[Sequence]

Examples:
  COMP-HQ-001     → Computer, Headquarters, #001
  VEH-WARE-003    → Vehicle, Warehouse, #003
  EQUIP-MFG-015   → Equipment, Manufacturing, #015
  FURN-BR1-042    → Furniture, Branch 1, #042

Benefits:
- Easy to sort and filter
- Location visible in name
- Unique identification
- Consistent across organization

Depreciation Best Practices

Practice	Recommendation
Consistent timing	Run depreciation same day each month
Before close	Complete before period close
Both methods	Run book and tax together
Verify totals	Compare to prior periods
Document exceptions	Note any manual adjustments

Disposal Best Practices

Practice	Recommendation
Final depreciation	Run through disposal date
Physical verification	Confirm asset is gone
Documentation	Record reason and approval
Insurance update	Remove from coverage
IT assets	Secure data destruction

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Internal Controls

Segregation of Duties

ROLES AND RESPONSIBILITIES
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ASSET MANAGER:
  ✓ Create/approve proposals
  ✓ Maintain asset records
  ✓ Run depreciation
  ✓ Process transfers
  ✗ Create purchase orders
  ✗ Approve disposals

CONTROLLER:
  ✓ Approve disposals
  ✓ Approve write-offs
  ✓ Review GL reconciliation
  ✓ Approve impairments
  ✗ Create asset records
  ✗ Run depreciation

IT ADMIN:
  ✓ Configure FAM settings
  ✓ Manage user access
  ✓ System maintenance
  ✗ Create assets
  ✗ Approve transactions

AUDITOR (View Only):
  ✓ View asset records
  ✓ Run reports
  ✗ Modify data
  ✗ Process transactions

Approval Workflows

Transaction	Approval Required	Approver Level
Asset creation (< $10K)	Asset Manager	Manager
Asset creation (≥ $10K)	Controller	Director
Asset disposal (< $5K)	Asset Manager	Manager
Asset disposal (≥ $5K)	Controller	Director
Write-off (any)	Controller	CFO
Impairment (any)	Controller	CFO
Intercompany transfer	Both subsidiaries	Manager each

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Period-End Procedures

Monthly Checklist

MONTHLY FAM CLOSE CHECKLIST
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WEEK 1 (Before Close):
□ Review and approve pending proposals
□ Process any asset transfers
□ Complete disposal processing
□ Run depreciation for the period

WEEK 2 (Close Activities):
□ Reconcile FAM to GL
  □ Fixed asset accounts
  □ Accumulated depreciation accounts
  □ Depreciation expense accounts
□ Review and resolve discrepancies
□ Generate monthly reports

WEEK 3-4 (Post-Close):
□ Distribute reports to stakeholders
□ Archive documentation
□ Update insurance schedules (if changes)
□ Plan for upcoming acquisitions

Year-End Procedures

Activity	Timing	Owner
Physical inventory	Before year-end	Asset Manager
Impairment testing	Q4 annually	Controller
Insurance review	Annually	Risk Manager
Policy review	Annually	Controller
Tax reconciliation	After year-end	Tax Team

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Physical Inventory

Count Procedures

PHYSICAL ASSET INVENTORY
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1. PREPARATION:
   - Generate asset list by location
   - Assign count teams
   - Prepare count sheets
   - Notify location managers

2. COUNT EXECUTION:
   - Locate each asset
   - Verify asset tag number
   - Note condition (Good/Fair/Poor)
   - Record location
   - Flag missing or untagged assets

3. RECONCILIATION:
   - Compare counts to register
   - Investigate differences
   - Update locations as needed
   - Report missing assets

4. FOLLOW-UP:
   - Write off missing assets
   - Tag untagged assets
   - Update records
   - Document findings

Count Frequency

Asset Category	Recommended Frequency
IT equipment	Annually
Vehicles	Annually
Heavy equipment	Annually
Furniture	Every 2-3 years
Buildings	Every 3-5 years

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Common Issues & Troubleshooting

Depreciation Issues

Issue	Cause	Solution
No depreciation calculated	Asset not active	Change status to Active
Wrong depreciation amount	Incorrect setup	Review method, life, residual
Depreciation after end of life	System error	Verify depreciation stop date
Can't run depreciation	Period closed	Reopen period or adjust in new period
Duplicate depreciation	Ran twice	Reverse duplicate JE

Reconciliation Issues

Issue	Cause	Solution
FAM total ≠ GL	Missing asset	Review proposals, create if needed
Accum depr mismatch	Missed depreciation run	Run for missing periods
Disposed asset still in GL	Disposal not posted	Complete disposal processing
Intercompany imbalance	Transfer incomplete	Complete transfer in both subs

Proposal Issues

Issue	Cause	Solution
No proposals generated	Wrong account	Verify asset account setup
Duplicate proposals	Multiple transactions	Reject duplicates
Wrong proposed amount	Source transaction error	Edit proposal or source

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Integration with Other Modules

Accounts Payable

AP → FAM INTEGRATION
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Vendor Bill → Asset Proposal → Fixed Asset

Best Practices:
- Train AP on asset account coding
- Review large transactions for potential assets
- Link assets to source documents
- Maintain vendor information on assets

Procurement

Integration Point	Best Practice
PO creation	Use correct asset accounts
PO approval	Flag high-value purchases
Receipt	Trigger asset proposal
Invoice match	Capture accurate cost

General Ledger

Integration Point	Best Practice
Account setup	Separate accounts by asset type
Period close	Run depreciation before close
Reconciliation	Monthly FAM to GL reconciliation
Audit	Maintain detailed audit trail

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Compliance Considerations

Accounting Standards

Standard	Key Requirements
GAAP	Component depreciation optional, impairment testing
IFRS	Revaluation allowed, component depreciation required
Tax (MACRS)	Specific methods and lives for tax purposes

Audit Requirements

Area	Documentation Needed
Acquisition	Purchase documentation, approval
Depreciation	Method selection rationale
Impairment	Testing documentation, analysis
Disposal	Approval, proceeds evidence
Policy	Written capitalization policy

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System Configuration Tips

Performance Optimization

Setting	Recommendation
Depreciation runs	Schedule off-hours
Saved searches	Limit criteria for large datasets
Report generation	Cache frequently used reports
Batch processing	Use for bulk operations

Security Settings

Role	Access Level
Administrator	Full access
Asset Manager	Create, edit, depreciate
Viewer	Read-only
Auditor	Read-only, export

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Quick Reference

Key Formulas

Calculation	Formula
Net Book Value	Cost - Accumulated Depreciation
Depreciable Base	Cost - Residual Value
Straight Line Depr	Depreciable Base ÷ Useful Life
Gain/Loss	Proceeds - Net Book Value
Declining Balance	NBV × Rate

Key Reports

Report	Frequency	Audience
Asset Register	Monthly	Management
Depreciation Schedule	Monthly	Accounting
Disposal Report	Quarterly	Management
Reconciliation	Monthly	Controller
Physical Count	Annually	Auditor

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Related Topics

• Asset Types - Configuration setup
• GL Impact - Journal entries
• Reporting - Report details