The management of a company’s fixed assets consists in administering the assets intended to serve the company sustainably. It brings goods into conformity and anticipates the financial impacts.
Often associated with the end of the financial year, inventory work on fixed assets is a legal obligation. Indeed, it is an exercise that requires a certain effort of precision and rigor.
The value of the company’s assets and liabilities must be subject to an inventory at least once per financial year.
This includes all of the company’s assets. Consequently, the annual physical inventory also covers fixed assets. Thus, depending on the activity and the organization of the company, the inventory can prove to be particularly complex.
In addition to simply responding to a legal obligation, the physical inventory of fixed assets represents an annual opportunity to update and improve internal procedures. It enables them to streamline their accounting, analytical management, and even logistical procedures.
To do this, it is necessary to follow a rigorous methodology for keeping the physical inventory of fixed assets and know the different types of methods used. How many types of fixed asset inventory are there? Here are some examples of inventory types:
Physical inventory:
It consists of checking the number of records that are in a database with a physical and real inspection of what is in the company.
Periodic or intermittent inventory:
This type of inventory is carried out from time to time. This presents certain advantages and disadvantages, on the one hand, the cost of this type of inventory is usually low; on the other hand, it could result in inaccurate data during periods when inventory is not tracked. For this reason, it is recommended not to neglect this section.
Perpetual or permanent inventory
Thanks to computer applications, it is possible to constantly and automatically update accounts and inventory databases. These applications instantly monitor each movement that each asset is made and can send electronic updates to the databases anywhere, thus, the exact knowledge of each asset that exists in a company is guaranteed.
It is important to clarify that despite the advantages of this type of inventory, it will be necessary to carry out a physical inventory of the assets at a given time.
What would be the possible consequences of a poor inventory of fixed assets?
From bad investments in buying or updating equipment, to losses due to not knowing what is available due to possible deterioration, loss, or theft of assets; A bad inventory of assets can have severe repercussions for a company if it decides not to give it the importance and investment necessary to be able to control each of its assets.
It can even result in a defective service to the clients of a company because by not knowing what you have, it is not possible to make efficient planning to comply with what the possible clients of a company request.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.
Posted by
CA Aman Aggarwal
AKGVG & Associates