Professional Documents
Culture Documents
Presented & Prepared by: Internal Audit Department Sindh Agriculture & Forestry Workers Coordinating Organization Credit & Enterprise Development
Context:
Introduction Scope Objective Definitions Statutory and Regulatory Frame Work Responsibility Classification of Fixed Assets Identification of Fixed Assets Fixed Asset Register Capitalization Criteria Maintenance Plans Financial Management Funding Of Capital Projects Financial Disclosure Accounting For Fixed Assets Safekeeping of Assets and Internal Control General Requirements Valuation of Assets Insurance of Assets Depreciation of Fixed Assets Carrying Values of Fixed Assets Supplemental Topic Annexure Page no: 03 03 03 04 06 06 07 08 09 11 11 12 13 14 15 16 17 18 19 20 21 22
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Introduction
This Policy document is deemed necessary in order to facilitate the effective management, control and maintenance of all assets belonging to the SAFWCO-CED. This document is subject to future changes prescribed by Board of directors or CEO.
Scope
This policy will be applicable to all the staff of the SAFWCO-CED.
Objective
The objective of this Policy is to ensure that assets are properly managed and accounted for by: The accurate recording of essential asset information; The accurate recording of asset movements; Exercising strict physical control over all assets; Financially substantiating and accounting of assets as per the Financial Statements; Providing accurate and meaningful management information in conjunction with the other Compliance with Managements Accounting Policies; Effecting adequate insurance of all assets and assist with insurable interest where possible and; Maintenance of Managements Asset
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Definitions
Fixed asset
A fixed asset is defined as a tangible item of property, plant or equipment held by a SAFWCO-CED for use in the productions or supply of goods or services, for rental to others, or for administrative purposes, and which is expected to be used during more than one reporting period (financial year). A fixed asset is thus an asset, either movable or immovable, under the control of the SAFWCO-CED, and from which the SAFWCO-CED reasonably expects to derive economic benefits, or reasonably expects to use in service delivery, over a period extending beyond one financial year. Assets include land, buildings engineering works, machinery, equipment, vehicles, office furniture and equipment, but would exclude minor items that are generally regarded as expendable, even though their useful lives may extend beyond one year, e.g. pens, files and note pads. An asset held under a finance lease, shall be recognized as a fixed asset, as the SAFWCO-CED has control over such an asset even though it does not own the asset.
Investment properties
Properties that are acquired for economic and capital gains. Examples are office parks and undeveloped land acquired for the purpose of resale in future years.
Assets
Assets utilized in normal operations. Examples are plant and equipment, motor vehicles and furniture and fittings.
Depreciation
Systematic allocation of the depreciable amount of an asset over its useful life.
Depreciable amount
Cost of an asset, or other amount substituted for cost in the financial statements, less its residual value.
Useful life
a) The period of time over which an asset is expected to be used by the SAFWCO-CED, or b) The number of production or similar units expected to be obtained from the asset by the SAFWCOCED.
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Cost
The amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction. The cost of acquisition will include all expenditure needed to bring the asset at the condition and position for its intended use which usually include: Purchase cost (less any discounts given) Delivery cost Installation cost Professional fees, e.g. engineering fees Site development fees
Residual value
The net amount that the SAFWCO-CED expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal.
Fair value
The amount for which an asset could be exchanged between knowledgeable, willing parties in an arms length transaction .
Recoverable amount
The amount that the SAFWCO-CED expects to recover from the future use of an asset, including its residual value on disposal.
Capital budget
Plan of proposed capital expenditure and the means for financing them, and the timing.
Capital budgeting:
The process of choosing investment projects by considering the present value of cash flows and deciding how to raise the funds required for the investment.
Capital expenditure:
Expenditure to acquire or improve fixed assets.
Finance Lease:
Finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset.
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Operating Lease:
lessee
Responsibility
Administration officer and Branch Manager of the SAFWCO-CED, shall be the principal custodian of all the SAFWCO-CED fixed assets, and shall be responsible for ensuring that the fixed asset management policy is scrupulously applied and adhered to. The Finance Manager shall be the fixed asset registrar of the SAFWCO-CED, and shall ensure that a complete, accurate and up-to-date computerized fixed asset register is maintained. No amendments, deletions or additions to the fixed asset register shall be made other than by the Finance Manager or by an official acting under the written instruction of the Finance Manager. Although certain responsibilities have been allocated to certain levels of management, within the fixed asset policy, the ultimate responsibility to ensure control over each asset in terms of the policy remains with CEO and GM. The Finance Department will financially substantiate the assets as per Financial Statements and participate in the process of physical control to achieve accurate and reliable asset information with regards to purchases, write-offs, transfers, donations and locations. The system, in as far as the maintenance and management of assets for all the departments shall be the same. The Finance Department in consultation with other departments will establish a system for control and maintenance. Heads of Department (GM) will approve/recommend all asset movements which relate to: 1. Writing-off of items (approval by the Administration officer). 2. Transfer of items (inter departmental transfers) 3. Purchasing/replacement of Assets 4. The Finance manager and where necessary his/her duly designated official shall: Ensure implementation of the approved Asset Policy;
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Purchasing Committee
The purchasing committee shall be the final and authority to purchase the any assets other than donated assets. This committee shall be consist on 1. General manager / CEO 2. Internal auditor 3. Finance Manager 4. Admin officer 5. Any other person as permitted by GM/CEO
Free hold land Land and building Furniture and fixtures Computer and Information system Electrical equipment Motor vehicles Motor bikes
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Capitalization Criteria
The capitalization amount of PR 500.00 per unit (if purchased in group/ bulk such as chairs) and PR 10000 for individual items applied as a cut off limit in this document. The fixed assets Register is to record and maintain all capital assets in excess of PR, which consists of assets nature wise categories, i.e. fixed and movable assets. Information regarding the value of capital assets, acquisitions, write-offs and sources of financing is disclosed in the financial statements.
Recognition of Assets
An asset is recognized when it is probable that the future economic benefits or potential service provision will flow to Management and the asset has a cost or value that can be reliably measured.
Material value
No item with an initial cost or fair value of less than cut off limit or such other amount as the Management of the SAFWCO-CED may from time to time determine on the recommendation of the Administration officer shall be recognized as a fixed asset. If the item has a cost or fair value lower than this capitalization benchmark, it shall be treated as an ordinary operating expense. Every Branch manager and department manager shall, however, ensure that any item with a value in excess of set criteria, and with an estimated useful life of more than one year, shall be recorded on an inventory list. And they shall ensure that the existence of items recorded on such asset inventory lists is verified from time to time, and at least quarterly, and any amendments which are made to such inventory lists pursuant to such stock verifications shall be retained for audit purposes.
Intangible items
No intangible item shall be recognized as a fixed asset, except that the Finance Manager, acting in strict compliance with the criteria set out in IAS 38 (dealing with research and development expenses) may recommend to the Management that specific development costs be recognized as fixed assets.
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Maintenance Plans
Administration officer by consenting with shall ensure that a maintenance plan in respect of every new infrastructure asset with a value of PR 10,000 (Ten Thousand) or more is promptly prepared and submitted to the Management of the SAFWCO-CED for approval. If so directed by the Administration officer, the maintenance plan shall be submitted to the Management prior to any approval being granted for the acquisition or construction of the infrastructure asset concerned. The head of department controlling or using the infrastructure asset in question, shall quarterly report to the Management of the extent to which the relevant maintenance plan has been complied with, and of the likely effect which any non-compliance may have on the useful operating life of the asset concerned.
Financial Management
Pre-Acquisition Planning
Before a capital project is included in the budget for approval, the Finance Manager must demonstrate that they have considered: The projected cost over all the financial years until the project is operational; The future operational costs and revenue on the project, including tax and tariff implications; The financial sustainability of the project over its life including revenue generation and subsidization requirements; The physical and financial out lays of that asset through all stages in its life including acquisition, installation, maintenance, operations, disposal and rehabilitation; The inclusion of this capital project in the integrated development plan and future budgets and; Alternatives to this capital purchase.
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Financial Disclosure
The financial statements will disclose, in respect of each class of property, plant and equipment classified under the categories of infrastructure, community, heritage, investment properties and other assets: (a) The measurement bases used for determining the gross carrying amount. When more than one basis has been used, the gross carrying amount for that basis in each category should be disclosed. (b) The depreciation methods used. (c) The useful lives of the depreciation rates used. (d) Depreciation charged in arriving at net surplus or deficit for the period. (e) The gross carrying amount and the accumulated depreciation at the beginning and the end of the period. (f) A reconciliation of the carrying amount at the beginning and end of the period showing: I. II. III. IV. V. VI. VII. Additions Disposal Increases or the decreases resulting from revaluations Deductions in carrying amount Amounts written back Depreciation Other movements
The financial statement will also disclose: (a) Whether or not, in determining the recoverable amount of items of property, plant and equipment, expected future cash flows have been discounted to their present values. (b) The existence and amounts of restrictions on title and property, plant and equipment pledged as security for liabilities. (c) The accounting policy for restoration costs relating to items of property, plant and equipment. (d) The amount of expenditures on account of property, plant and equipment in the course of construction, and (e) The amount of commitments for the acquisition of property, plant and equipment.
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Depreciation
Depreciation must be calculated on an annual basis. After each depreciation run, a fixed asset report must be printed stating the following: Asset number Description Cost price Depreciation for the period Accumulated depreciation Book value The following entries must be processed: Entry Amount Debit: Credit: the relevant depreciation amounts in the operating accounts the relevant accumulated depreciation accounts.
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If the asset was sold The profit/loss on the transaction needs to be calculated. The following entries need to be made in the general ledger.
Amount bank or debtor the amount the asset was sold for fixed asset account the amount the asset was sold for accumulated depreciated account the up-to date accumulated depreciation fixed asset account the up to- date accumulated depreciation for the Asset. fixed asset account the profit/loss made on the transaction Credit/ profit/loss on sale of fixed the profit/ loss made on the transaction asset account
All profits on sale of individual assets must be transferred to the Asset Financing Fund.
Financial Controls
The Fixed Asset Register must be reconciled with the following General Ledger accounts on a monthly basis.
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General requirements
Items purchased, with an expected life span of more than one year, will be reported by the department doing the purchasing to the Finance and Administration department to ensure recording in the asset register. In order to record items the Asset Control Section must be notified by the department doing the purchasing within 14 days of any of the following possible movements: Purchases Donations Additions/Improvements Departmentally manufactured items Auctions Loss or damage Transfers Resignations Land Sales 15 | P a g e
The Management shall ensure that the alienation of any fixed asset takes place in compliance of company ordinance and IAS 16. The SAFWCO-CED will not transfer ownership as a result of a sale or other transaction or otherwise permanently dispose of a non-current asset needed to provide the minimum level of basic SAFWCO-CED services. The SAFWCO-CED will transfer ownership or otherwise dispose of a non-current asset other than one contemplated above, but only after the management in a meeting has decided on reasonable grounds that the asset is not needed to provide the minimum level of basic services, and has considered the fair market value of the asset and the economic and community value to be received in exchange for the asset. The decision that a specific non-current asset is not needed to provide the minimum level of basic services will not be reversed by the SAFWCO-CED after that asset been sold, transferred or otherwise disposed off.
Disposal of assets
Land and Buildings shall be auctioned at the reserved prevailing market prices as indicated by the valuators at the time of disposal; All computer equipment / motor vehicles to be disposed of will be subject to scrutiny by the IT admin officer / Manager; There must be a document of approval by Management or relevant head for any asset which has to be disposed of presented to the management before the asset will be removed from the system.
Transfer of assets
The GM and Relevant Manager shall approve all asset movements, which relate to the transfer of assets from one department/branch to the other. When a department/branch transfers an asset or an inventory item interdepartmentally, the Asset Transfer Form must be forwarded to the department receiving the asset or inventory item (being the Asset Transfer Form attached). A copy of this form is to be forwarded to the Admin officer head office, one in relevant department /branch and one to the finance Manager for the update of the asset register.
Resignations
At the resignation of an employee the applicable Director or his/her duly delegated representative must complete the relevant asset form and forward it to the Human Resources Department. This form is a statement that the inventory and asset items entrusted to the employee to execute his/her daily duties are in good order and handed in where necessary.
Donations/acquired departmentally
When a donation is received or an item is acquired departmentally the item will be recorded in the asset register at a value (fair value) prescribed by the Finance Manager. The responsible department must complete the asset form and submit this to the Admin department.
Additions/improvements
Depending upon the type of addition or improvement to a specific asset the responsible administration department/ branch must notify the change in status. The asset will be recorded at its increased value on receipt of the required asset form from the responsible directorate/department. When any changes to vacant land or land and buildings are affected such as subdivision, transfer to another department, extent or holders title the current owner must complete the relevant forms and forward it to the admin and Finance department.
Replacement norms
The Administration officer, in consultation with the Finance Manager and head of departments, shall formulate norms and standards for the replacement of all normal operational fixed assets. Such norms and standards shall be incorporated in a formal policy, which shall be submitted to the Management of the SAFWCO-CED for approval. This policy shall cover the replacement of motor vehicles, furniture and fittings, computer equipment, and any other appropriate operational items. Such policy shall also provide for the replacement of fixed assets which are required for service delivery but which have become uneconomical to maintain.
Stock take
Stock taking will be responsibility of Administration department and ensure that all new assets are barcoded and created on the system. Every employee will be notified within 10 days in advance of the stock taking process and time. Stock taking will ensure that all the new assets are bar-coded and created on system timely and accurately. It will be the responsibility of the administration department to organize
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Inventory lists
Duplicate inventory lists will be produced and handed to every employee assigned to an office. The inventory lists will be verified by that specific employee and signed. One inventory list will be handed to the Admin Depart and the other one will be attached to the back of the employees office door. If there are any inaccuracies on the list it will immediately be rectified.
Valuation of Assets
Land and buildings
All land and buildings recorded in the SAFWCO-CED fixed asset register shall be revalued with the adoption by the SAFWCO-CED of each new valuation roll (or, if the land and buildings concerned fall within the boundary of another SAFWCO-CED, with the adoption by such SAFWCO-CED of each new valuation roll). The Finance Manager shall adjust the carrying value of the land and buildings concerned to reflect in each instance the value of the fixed asset as recorded in the valuation roll, provided the Finance Manager is satisfied that such value reflects the fair value of the fixed asset concerned. The Finance Manager shall Also where applicable, create a revaluation reserve for each such fixed asset equal to the difference between the value as recorded in the valuation roll and the carrying value of the fixed asset before the adjustment in question. The fixed asset concerned shall, in the case of buildings, thereafter be
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Insurance of Assets
The Finance Department shall ensure that all the assets are accurately insured. The Administration officer shall recommend to the Management of the SAFWCO-CED, after consulting with the Finance Manager, the basis of the insurance to be applied to each type of fixed asset: either the carrying value or the replacement value of the fixed assets concerned. Such recommendation shall take due cognizance of the budgetary resources of the SAFWCO-CED. The Finance Manager shall annually submit a report to the Management of the SAFWCO-CED on any reinsurance cover which it is deemed necessary to procure for the SAFWCO-CED self-insurance reserve.
Rate of depreciation
The Finance Manager shall assign a useful operating life to each depreciable asset recorded on the SAFWCO-CED fixed asset register. In determining such a useful life the Finance Manager shall adhere to the useful lives set out in the annexure to this document. In the case of a fixed asset which is not listed in this annexure, the Finance Manager shall determine a useful operating life, if necessary in consultation with the head of department who shall control or use the fixed asset in question, and shall be guided in determining such useful life by the likely pattern in which the assets economic benefits or service potential will be consumed.
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Method of depreciation
The Finance Manager shall depreciate all depreciable assets on the straight-line method of depreciation over the assigned useful operating life of the asset in question.
Supplemental Topic
Investment Property (If in the case any asset held in this head)
Investment assets (resources held for capital or operational gain) Investment assets shall not be classified as property, plant and equipment for purposes of preparing the SAFWCO-CED statement of financial position. Investment assets shall comprise land or buildings (or parts of buildings) or both held by the SAFWCO-CED, as owner or as lessee under a finance lease, to earn rental revenues or for capital appreciation or both. Investment assets shall be recorded in the fixed assets register in the same manner as other fixed assets, but a separate section of the fixed assets register shall be maintained for this purpose. Investment assets shall not be depreciated, but shall be valued annually to determine their fair (market) value. Investment assets shall be recorded in the balance sheet at such fair value. Adjustments to the previous years recorded fair value shall be accounted for as either gains (revenues) or losses (expenses) in the accounting records of the department or service controlling the assets concerned. An expert valuer shall be engaged by the SAFWCO-CED to undertake such valuations. If the Management of the SAFWCO-CED resolves to construct or develop a property for future use as an investment property, such property shall in every respect be accounted for as an ordinary fixed asset until it is ready for its intended use hereafter it shall be reclassified as an investment asset. The Finance Manager shall adhere to the classifications indicated in the annexure on fixed asset lives, and in the case of a fixed asset not appearing in the annexure shall use the classification applicable to the asset most closely comparable to the asset in question.
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Acquisition Form
Voucher No #: _____________
Date
: ________________
Payment: ________________
Bank:
________________
Catalog #
Qty
Description
Unit
Price
ATTACHMENT
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