IT Services

Accounting for Small Businesses | Fixed Asset Accounting

IT Services

In this day and age, technology has made office work easier through automation. Gone are the days when bookkeepers enter transactions in ledgers and journals by hand. Small businesses apply accounting software to simplify business processes and to improve production time.

However, every small business must know the basics before using applications. How can one use accounting software if they don’t have basic knowledge of accounting? For inquiries about accounting software, visit a company specialising in such a solution.

If you’re a business owner or manager whgo’s having a hard time understanding the accounting software for fixed assets, here’s a primer on fixed asset accounting for small businesses.

Definition of an asset

Before you use a certain type of software for fixed asset accounting, it is a must that you understand the basics of accounting for fixed assets first.

The International Accounting Standards Board (IASB) defines the term “asset” in the International Accounting Standard (IAS) 1 Presentation of Financial Statements as “a resource of a company as a result of past events”.

Furthermore, assets are classified as either current or noncurrent. Fixed assets are noncurrent assets because:

  • They are not expected to be realised (i.e., sold) within the normal operating cycle or one year, whichever is shorter.
  • They are expected to be used for more than one accounting period (i.e., long-term in nature).

Visit an expert’s website to discover a good fixed accounting software for your business.

Initial measurement

Fixed assets should be measured at cost. Accounting software will rely on you in determining the cost of the asset. IAS 16 Property, Plant, and Equipment prescribes that the cost of fixed assets should be composed of the following:

  1. Purchase price

​The purchase price is the invoice price of the asset net of any discount. It shall include legal and brokerage fees, import duties, and nonrefundable purchase taxes.

  1. Directly attributable costs in bringing the asset to its intended use

It shall include delivery fees, installation costs, setup costs, assembly fees, site preparation costs, etc.

  1. Estimated cost of dismantling or removing the asset in the future

In case the asset is fixed or attached to the ground, future dismantling and removal cost must be estimated and added to the cost of the fixed asset at its present value.

Subsequent measurement

Once you’ve determined the cost of an asset, the accounting software can subsequently measure it at its carrying value. The carrying value of a fixed asset is its cost, less the accumulated depreciation.

Depreciation methods can be classified based on the pattern of use:

  • Fixed charge method — If an asset is used uniformly over its useful life, depreciation is often at a fixed charge or a straight-line depreciation. Examples of fixed charge depreciation are straight-line method or composite method.
  • Variable method — If an asset is to be used based on a variable event (e.g. inputs in production, outputs in production), a variable rate is assigned.
  • Diminishing method — If an asset is to be used extensively in its first few years, a diminishing method can be used to reflect actual usage over time. Example of diminishing depreciation is the double-declining balance method or sum-of-the-years digits method.

In terms of computing annual depreciation, the accounting software can do that as long as you provide the (1) depreciation method, (2) salvage value, if any, and (3) useful life.

To find a good accounting software for your business, check out Lunic Software. Visit their website, specifically this page, www.lunicsoftware.com.au/fixed-assets/, for more useful information.