Asset Management
Asset Management
Asset Management
Asset Management
for
for
for
for NFPs
NFPs
NFPs
NFPs
September 2012Presented by Rosemary Campbell, Director – Merit Partners Pty Ltd
Aim of this session
What are assets and why manage them
Our aim is to help you better manage the
assets you are responsible for
Understand and use financial terms and
concepts
Plan, control, record, report
Answer your questions
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Systematic process of acquiring, operating,
maintaining and disposing of assets cost effectively and in accordance with your strategic goals Limited resources Control Accountable Good governance Strategic Goals Planning Acquisition Disposal
Strategic Plan
Identify program delivery needs (what you want)
Identify optimal asset mix (what you need)
Review the existing asset portfolio (what you have) Analyse the gap
Document in an Asset Management
Plan
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To continue to provide benefits to the
program
Future economic benefits controlled by an
entity as a result of past transactions or events
Something that contributes to your programs
and services beyond the current financial year
Recorded on the Balance Sheet
Current (<12 months) v. Non-Current (>12
months)
Land, buildings, vehicles, plant & equipment,
IT & communication infrastructure, software
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Depreciation and amortisation
Expenses
Allocate the depreciable value over the useful
life
Depreciable value = cost minus residual value
Accumulated depreciation is the portion of
the asset’s cost that has been transferred to the depreciation expense account since the asset was acquired (how much of the asset’s cost has been used up by its use)
E.g. Cost = $200, Depreciation Expense = $20
Balance Sheet shows:
Asset, at cost $200
less Accumulated Depreciation ($120)
Carrying value $80
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Debits DebitsDebits
Debits CreditsCreditsCreditsCredits
Depreciation Expense $20 Accumulated Depreciation $20 Residual Value Useful Life Depreciation methods ◦ Prime Cost ◦ Diminishing Value
Choice of method = your accounting policy
Prime Cost
◦ Straight line
◦ Same amount each period
◦ Easy calculation, less errors in calculation
Diminishing value
◦ Decreasing amount each period
◦ Usually more reflective of economic life
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Asset cost $1,000 with useful life of 5 years
PC depreciation expense = $1,000/5 = $200/year DV depreciation expense ◦ Yr 1 = $300 = $1,000 x 150%/5 ◦ Yr 2 = $210 = ($1,000 - $300) = $700, $700 x 150%/5
Revaluations
◦ Instead of reporting at historical cost
◦ Revalue to market value
◦ Frequency usually depends on market volatility
◦ Documentation
◦ Qualified Professional
Impairment
◦ The asset is not worth the value at which it is recorded
◦ Obsolescence, law changes, physical damage, no longer fit for purpose
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1. Asset Management Plan
2. Policies & procedures
Acquisition, disposal and lifecycle management
decisions need to be integrated with your strategic planning
Plan how and when to acquireacquireacquireacquire assets Plan how to operate and control operate and control operate and control assetsoperate and control Plan how and when to disposedisposedisposedispose of assets
Reduce the adverse effects of unexpected events Identify and prioritise critical assets
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Fundamental good governance tool
Fundamental irrespective of size of asset
portfolio
Contains current and historical, financial and
non-financial information
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Asset information
•Unique asset number •Barcode number •Asset description •Serial number •Model •Manufacturer •Supplier •Invoice Number Accounting information •Date purchased •Date available for use •Asset class •Acquisition Cost •Gross amount at
valuation •Valuation basis •Date of last valuation
Accountability •Custodian •Location •Program/activity •Cost Centre •Last stocktake/inspection •Next stocktake/inspection Asset Performance •Functionality •Operational importance •Use •Maintenance criteria •Current condition •Warranty end date •Warranty conditions •Lifecycle costs
Advantage: correct calculations and accurate
information = better reporting and more informed decisions
Disadvantage: cost
Format depends on importance of asset
management in your organisation
19 Basic spreadsheets Off-the-shelf software More sophisticated software Complex integrated asset management system
What do you use now? Good points? Bad
points?
Commercial businesses generally don’t
maintain their own asset register!
◦ Processing is outsourced to accountants
◦ Cost effective – no outlay on software, no training, no support costs
◦ Auditors have more comfort
Large organisations use expensive,
If you want your own software
◦ Determine the scope (what do you want the software to do/to give you)
◦ Evaluate the options, considering:
• Costs
• License
• Support
• Reputation of supplier and product
• Staff • Testimonials • Trial 21 Useability Maintainability Sustainability
Irrespective of its format, your input is critical
◦ Record all assets, regardless of funding source
◦ Record each assetassetassetasset separately
• Except aggregated assets e.g. sets
◦ Record each categorycategorycategorycategory separately
Asset recognition
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Past event gave ability to control Future economic benefits Value exceeds asset threshold Reliable measurement Asset Cost
Asset Capitalisation Threshold
Donated Assets
Reserves (saving)
Mainstream financing options
◦ Loan
◦ Leases
◦ HPs and Chattel Mortgages
Grants
Receiving donated assets
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Physical asset management – input;
managing the lifecycle
Financial asset management – output –
accounting process to track, record and report
The realities of assets
◦ Assets are not built to last forever
◦ Different assets have different probabilities and rates of failure
◦ You need to manage the failure rates
Know the asset’s demand, use, condition, age, risk &
consequence of failure, renewal options
Know which are your critical assets
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For own use / use in service delivery or held
as investment
Land is not depreciable
Buildings are measured at cost or fair value
Disclose the fair value of investment
properties in the financial statements
Buildings measured at cost can be revalued
◦ Revaluation increment to Asset Revaluation Reserve
◦ Revaluation decrement to P&L
Used in daily operations
Consider
◦ Identification
◦ Storage
◦ Portable & attractive item
◦ Responsibility
◦ Protection
◦ Insurance
◦ Maintenance
◦ Controls over use
◦ Disposal and replacement
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Owned or leased
Assets under a novated lease do not belong
to the NFP
Budget for operating costs and replacement
To maximise the return you get from the asset
and its prolong its useful life
Should be proactive and preventative
Maintenance plan/schedule
◦ Regular inspections to monitor age and condition; profile reports
◦ Know the lifecycle costs
◦ Know the costs and benefits of repair v replace; “How much can we justifiably spend on repairing the asset before replacing it?”
◦ Know the risks: operational, safety, legal, environmental 31 $200 $400 $600 $800 $1,000 $1,200 0 1 2 3 4 5 6
Cumulative Costs v Age Cumulative Costs v Age Cumulative Costs v Age Cumulative Costs v Age
Adequate and current coverage to protect the
organisation
Could include details in Fixed Asset Register
Insurance payouts are income
Separately record:
◦ Disposal or repair of old asset
◦ Insurance payout
◦ Acquisition of new replacement asset
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Asset Disposal Plan
◦ Procedures
◦ Approval
◦ Security & confidentiality considerations (remove ID and cleansing electronic information)
35 Expected •Direct sale •Auction •Exchanged •Traded in •Sale by tender •Expressions of interest •Scrap •Salvage •Donate Unexpected •Destroyed by accident/damaged beyond repair
•Destroyed by cyclone, flood, fire
•Stolen •Lost
Calculate depreciation expense up until the
disposal date (the end of the asset’s useful life to the organisation)
Then, record proceeds received if any, $100
Remove asset , original cost $200
Remove accumulated depreciation $80
Debits Debits Debits
Debits CreditsCreditsCreditsCredits
Cash at bank $100
Asset $200
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Sale SaleSale
Sale proceeds received from buyerproceeds received from buyerproceeds received from buyerproceeds received from buyer $100$100$100$100
Less: costs to sell ($nil)
$100
Less: written down value of asset at disposal ($80)
Gain GainGain
Gain/(loss) on sale $20
Delete the asset from the Fixed Asset
Register in the year afterafterafterafter the disposal
FBT obligations from disposals to employees
or their associates
Governance & control
Existence
Asset register complete and accurate
Valuations
Depreciation
Assumptions & evidence
Assets materially affect the financial reports
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Asset Management Plan
Policies & Procedures
Fixed Asset Register
Portable & Attractive Items Register
Asset Identification
Stocktakes and condition inspections
Update the Fixed Asset Register
Budgets
