Specimen of Company fixed asset policy

 

ABC Limited

Fixed Asset & Capitalization Policy 

1.       Purpose

This accounting policy establishes the method of maintaining fixed asset information and the minimum cost (capitalization amount) that shall be used to determine the fixed assets that are to be recorded in ABC Limited’s annual financial statements (or books).

Fixed Asset definition

A Fixed Asset is defined as a unit of property that: (1) has an economic useful life that extends beyond 12 months; and (2) was acquired or produced for a cost of BDT 10,000 or more. Fixed Assets must be capitalized and depreciated for financial statement (or bookkeeping) purposes.

Maintenance of Fixed Asset List

A Fixed Asset List shall be maintained by the organization’s Admin Officer and shall be reviewed annually by the Board at the close of financial year, to ensure the document is accurate and up to date. The following information will be captured in an Excel workbook for each item on the Fixed Asset List:

Ø  Assigned asset number

Ø  Description of the asset

Ø  Asset Category (Comp. & Equip./Furniture/Vehicles Etc.)

Ø  Acquisition Date

Ø  The asset’s cost or acquisition value

Ø  The asset’s salvage value, if any

Ø  The asset’s estimated useful life

Ø  Monthly Depreciation

Ø  Year-end Book Value

Capitalization thresholds

ABC Limited establishes BDT 10,000 as the threshold amount for minimum capitalization. Any items costing below this amount should be expensed in ABC Limited’s financial statements (or books).

Capitalization method and procedure

To comply International Accounting Standards (IAS 16), fixed assets shall be recorded at historic cost as of the date acquired or, if the cost is not readily determined, at estimated historic costs. Cost shall include applicable ancillary costs (i.e. shipping & delivery cost, installation cost, other costs associated to the asset). Tangible assets costing below the aforementioned threshold amount are recorded as an expense for ABC Limited’s annual financial statements. Alternatively, assets with an economic useful life of 12 months or less are required to be expensed for financial statement purposes, regardless of the acquisition or production cost.

Useful Life

Asset Category	Useful Life
Computer & Computer Accessories-Laptop	3 Years
Furniture & Fixture	5 Years
Office Equipment	5 Years
Vehicles	5 Years

The useful life of an asset is that period during which the asset provides benefits. Estimates of useful life consider factors such as physical wear and tear and technological changes that bear on the economic usefulness of the asset. The following chart summarizes the useful life for each type of currently held property, Plant & equipment:

Depreciation Method

The organization has established the straight-line methodology for depreciating all fixed assets. Depreciation will begin in the month the asset is placed in service for full month regardless purchase date. Under the straight-line depreciation method, the basis of the asset is written off evenly over the useful life of the asset. The amount of annual depreciation is determined by dividing an asset’s cost reduced by the salvage value, if any, by its estimated life. The total amount depreciated can never exceed the asset’s historic cost less salvage value. At the end of the asset’s estimated life, the salvage value will remain.

Recordkeeping

Invoice substantiating an acquisition cost of each unit of property shall be retained for a minimum of four years.

Adopted this the 1^st January, 2021 by board