2007 Review of Fixed Asset Systems

From the December 2007 Issue

Every business, large and small, has assets that help them perform their work or deliver the services they provide their clients. Whether a company is retail oriented, a restaurant, manufacturing or service-based, things like computers, machinery, vehicles and even real estate are crucial to operations and are entitled to special treatment under tax law depending upon the type of item, the industry and other factors.

Understanding how and why things depreciate in their value to a company is important, especially when determining the best available depreciation strategy for a particular asset. After all, fixed asset management is as much an art as it is a science because businesses and their accounting professionals often have options on how to treat an item. Once upon a time, about 15 years ago, the process was perhaps simpler in concept (there were fewer special treatments and conventions), but since the work was done manually on spreadsheets (or on paper) it was much more difficult to manage even smaller numbers of business assets.

But several programs are available now, generally database-driven systems with strong calculation capabilities that greatly ease the entire asset management process, from acquisition through disposal. For asset life events, the systems make it easy to split, unsplit or combine assets, while also allowing revaluation, partial and mass dispositions, and like-kind exchanges. Assets can also be grouped into a business’ subsidiary units or by geographic location or cost center. To comply with federal and state regulations, and to assist in accurate business valuation, asset management systems also help maintain clear and accurate documentation and audit trails, showing how assets have been depreciated and what methods were used. But these are mostly organizational functions.

Determining the depreciation treatment that provides the best overall financial benefit to the business, and that follows GAAP and FASB conventions, is the “meat and potatoes” of asset management programs. And it’s a complex process, especially considering that every taxing entity and other parties allow and require different treatment of assets. To manage them differently, asset management systems allow users to maintain multiple books for assets, always including federal, book, AMT, ACE and state, and often also allowing multiple customized books.

Programs also help the user select the appropriate classification for an asset, including whether it is an asset of a farm, Indian Reservation, Indian Farm or governmental entity, which have different allowances than regular assets. After determining the class, these programs help with application of depreciation methods, including MACRS and ACRS rules, Sum-of-the-Years’ Digits, Listed Auto, Amortization, Straight-Line, Units of Production, Declining Balance and eligibility of bonus depreciation under Section 179. For this review of asset management programs, the following criteria were addressed: