Within the wider framework of keeping a company’s books there sits a plethora of different accounting methods and record keeping processes that have to be used. Some because there is a statutory requirement, others by virtue of good common sense. Into the first category falls the FAR or ‘Fixed Asset Register’, the Companies Act of 1956 means that it is mandatory for companies to maintain a Fixed Asset Register as part of their general business bookkeeping.
The Fixed Asset Register is quite simply a record of the chunk of a company’s assets that constitute its ‘fixed’ assets; fixed is the term used to describe assets which cannot easily be converted into cash and are not held for the purpose of selling them on; assets that are owned to enable a business to function, either to provide a service or produce a product; in the case of manufacturers it is usually machinery, land, property etc. and for service providers, equipment and premises; it can also include less tangible assets such as copyrights, patents and trademarks.
The reasons for the existence of an individual register of this kind are many; the Government’s interest lies mainly in always knowing the value of a company’s fixed assets for taxation purposes, hence the legislation, but there are other benefits to knowing the separate costs of such assets not least for the purposes of a company’s insurance.
However this record is not a simple list, it collects very specific data in a precise and detailed way and the way that it is recorded can tell those who understand FAR a lot at a glance. In addition to detailing the nature of a company’s fixed assets, the bookkeeper must account for loss or impairment of assets as well as logging the ongoing condition and changing value.
Keeping track of the exact origins of large assets can be problematic for the person keeping the records, as it can involve physical verification, which, as the name suggests would mean physically finding and visiting each piece of equipment or building to confirm its existence and location; most bookkeepers therefore ‘tag’ each asset in the register with an engraved alpha-numeric identification number to make tracking simpler; of course in the case of land and vehicles there will conveniently already be independent registration numbers.
Part of the recording process includes logging the assets’ value in the form of an assigned ‘carrying cost’, in order to do this a valuation has to take place; the carrying cost is usually set at either the current market value, the potential sale or realisable value or the distress sale value, which basically refers to an asset’s scrappage value.
Most bookkeepers and accountants who have the task of maintaining the Fixed Asset Register do so nowadays with the help of specially designed computer software; these programs can produce reports on demand and collate large amounts of information. Although they do not necessarily make the job of keeping the FAR up to date a simpler one, they certainly can make it less time consuming, which in turn helps with the accuracy of these important and required records.