Fixed Asset Management

By employing effective fixed asset management strategies, organizations reduce costs, improve decision-making, and ensure compliance with accounting standards such as GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards).

Organizations with diverse portfolios aim to manage assets ranging from buildings and equipment to fleets and properties. 

Effective management boosts operational efficiency, minimizes asset downtime, and utilizes assets fully. To understand the concept and its underlying principles, we’ll unpack some of the basic tenets of fixed asset management. 

What are fixed assets?

Fixed assets are long-term resources that provide benefits over several years. A tangible asset such as real estate, equipment, machinery, and vehicles qualifies. They are not expected to be converted to cash within a fiscal year and require ongoing management to track their depreciation, maintenance, and eventual disposal.

Because of their longevity, fixed assets are recorded on a company’s balance sheet rather than being fully expensed at once.

Fixed asset examples

To get a better sense of fixed asset management, we should provide examples of the property organizations own. Most manage a wide range of fixed assets, including:

Buildings and infrastructure

Offices, warehouses, educational facilities, and municipal garages are vital to operations and require consistent upkeep.

Equipment

Tools, machinery, HVAC systems, and production equipment play a central role in daily functions.

Fleets

Vehicles like construction trucks, buses, and snowplows ensure mobility and operational flexibility.

Non-building property

Assets such as parking lots, fencing, and landscaping contribute to functionality and aesthetics.

Fixed asset useful life

The asset lifecycle is crucial to fixed asset management. A fixed asset’s useful life is the period during which it is expected to remain functional and generate value for an organization.

The point at which an asset is in its lifecycle determines the appropriate action. For example, if an asset is fairly new and early in its lifecycle, organizations will employ preventive maintenance strategies to capture its full value.  

What impacts fixed asset useful life?

Many factors determine fixed asset useful life. Things like the type of asset, maintenance practices, and usage influence an asset’s longevity. Here is a little more about how: 

Asset type

Different asset types, such as machinery or buildings, have varying lifespans based on their inherent durability. Production-critical machinery may not last as long as a school building because of its frequent use and intricate parts. 

Maintenance quality and frequency

Maintenance can greatly extend the lifecycle of fixed assets. Regular preventive maintenance and expert reactive maintenance can ensure your investment lasts much longer. 

Usage and environmental factors

Excessive use, improper handling, or exposure to harsh environmental conditions can accelerate asset wear and tear.

How to extend an asset’s useful life

Every organization wants to get as much use out of their investments as possible. That’s a main driving factor in fixed asset management strategies. Though some may seem intuitive, here are some dependable methods for increasing an asset’s useful life: 

Preventive maintenance

Implementing a preventive maintenance schedule helps keep assets in working order. Addressing minor issues before they escalate into major problems keeps assets functional and extends their useful life. Things like performing fleet oil changes or cleaning HVAC ducts can keep assets functioning as intended. 

Inspections

Routine inspections are part of an effective preventive maintenance program and are essential for extending an asset’s useful life. Through inspections, organizations can detect wear and damage, enabling prompt corrective maintenance.

Predictive maintenance

Leveraging data and analytics, predictive maintenance tools can anticipate potential failures and recommend proactive measures.

Fixed asset management concepts

For a fuller understanding of fixed asset management, it’s important to unpack its concepts. Here are some of the things that make up fixed asset management. 

Fixed asset procurement

The first part of the asset’s lifecycle is its purchase. Organizations can buy new or used assets and utilize them to benefit their operations. 

Fixed asset tagging

Following the acquisition, tagging is the first step to implementing fixed asset management strategies. It is essential for tracking and monitoring. To successfully tag an asset, those responsible should assign a unique identifier to each. Tagging methods include:

• Barcodes—Affordable and simple to implement, ideal for most asset types
• QR codes—Allow detailed data storage, accessible via scanning
• RFID tags—Provide advanced tracking capabilities and real-time updates

Tagging during acquisition ensures accurate tracking throughout the asset’s lifecycle. Enterprise asset management (EAM) tools streamline this process, offering centralized management and monitoring features.

Fixed asset tracking

Assets are a valuable part of any organization. After the initial tagging set up, organizations must begin tracking their fixed assets. It helps prevent loss, theft, and inefficiency. Methods include:

• Manual tracking—While cost-effective initially, it is prone to errors and inefficiencies
• Digital tools—EAM systems improve accuracy, provide real-time updates, and streamline processes

Tracking assets allows organizations to extend an asset’s useful life, maintain compliance, and support strategic decision-making.

Fixed asset depreciation

To continue managing assets effectively, those in the public and private sector must calculate an asset’s lost value. Assets lose value over time due to use, wear, or obsolescence. To calculate depreciation, financial professionals incorporate common methods. Here are a few examples: 

• Straight-line depreciation—The most common depreciation method. It spreads asset costs equally every year
• Declining balance depreciation—This method uses an accelerated depreciation system that expenses more during the first years an organization owns an asset
• Production-based depreciation—Bases depreciation on the asset’s output or usage and calculates depreciation based on the value it’s creating for an organization instead of its service time
• Time-based depreciation—Calculates depreciation based on an asset’s expected usage period 

Using any of these methods, organizations can accurately reflect asset wear and tear. All of them will create accurate financial reporting and better budgeting. Understanding depreciation allows organizations to accurately account for asset value and meet compliance standards.

Fixed asset disposal

The final part of the asset lifecycle is its disposal. It marks the end of its life in an organization. Proper disposal involves:

1. Calculating the remaining value of the asset to inform decisions
2. Following local regulations for selling, recycling, or discarding assets
3. Updating asset registers and accounting documents to reflect the disposal, and maintaining accurate records

Fixed asset management documents

Documentation is a large part of fixed asset management. Since it’s intertwined with accounting and financial processes, most documents deal with monetary value. Here are some of the most common: 

Fixed asset schedule

A fixed asset schedule, sometimes called a depreciation schedule, is a detailed ledger that records essential information about a company’s fixed assets. 

A depreciation schedule provides a structured method for documenting asset information crucial to financial reporting, tax compliance, and asset management. 

This schedule typically includes descriptions, purchase dates, costs, accumulated depreciation, and net book value. By tracking these details, organizations monitor their current assets’ lifecycles and financials.

A fixed asset schedule documents all assets, their acquisition dates, costs, and current net book value. This is essential for:

• Simplifying audits by providing a clear overview of assets
• Planning capital expenditures based on asset lifecycle stages
• Managing lifecycle stages efficiently to maximize asset utilization

Fixed asset register

A register is a centralized list of all an organization’s fixed assets. It typically includes:

• Asset ID
• Purchase date
• Location
• Cost
• Depreciation rate
• Current value

Using EAM tools ensures this information remains accurate and easily accessible, streamlining asset tracking and management processes.

Fixed asset policy

A fixed asset policy is a foundational document that details an organization’s approach to fixed asset management. It should detail how each function interacts and manages fixed assets. This comprehensive policy document guides asset acquisition, usage, tracking, and disposal. Key components include:

• Purchase standards to ensure quality and suitability
• Maintenance strategies to optimize asset performance
• Disposal methods, including regulatory compliance and organizational goals

Fixed asset report

A fixed asset report details each asset’s value, location, maintenance history, and depreciation. These documents are similar to asset inventories. However, they focus specifically on fixed, long-term assets.

A fixed asset report should include inventory, depreciation, and maintenance reports. These documents help organizations assess the condition and financial state of their assets. Unlike fixed asset schedules, there are different types of fixed asset reports. These include:

Inventory reports—Track asset quantities and locations.

Maintenance reports—Record service history to optimize maintenance schedules.

Depreciation reports—Calculate asset depreciation to reflect accurate financial value.

Audit trail reports—Provide a history of asset transactions for accountability.

Disposal reports—Record details of asset disposal, ensuring compliance with disposal regulations.

Reconciliation reports—Match financial records with physical assets.

Capital expenditure reports—Track capital investments for financial planning.

It’s critical to understand when to use each type of report for all of your organization’s current assets. These standard reports will provide accounting information across each asset category.

How fixed asset management software can help

Managing fixed asset schedules manually can cause issues. These challenges are even more exaggerated by large asset inventories. 

Fixed asset management software offers a robust solution by automating data entry, tracking asset lifecycles, developing an asset management strategy, and simplifying reporting. Here are some key benefits:

Detailed asset tracking

Tracks each asset’s status, value, and performance over time.

Increased departmental collaboration

Allows for easy information sharing and reduces communication silos.

Measurable asset management KPIs

Monitors key performance indicators for asset utilization and maintenance planning.

Optimized maintenance schedules 

Reduces downtime by automating preventive maintenance tasks.

Better asset utilization

Ensures that each asset is maximized.

Summary

Fixed assets management encompasses the strategies and tools needed to track, maintain, and optimize long-term assets. Fixed asset management software ensures a fixed asset manager can uncover cost efficiency, compliance, and informed decision-making.

For further reading, explore these resources:

• Fixed asset report
• Fixed asset schedule
• Asset management strategy
• Preventive maintenance
• Capital planning
• Government asset management
• School asset management