2015 inspire tour: Fixed asset management

1. Fixed Asset Management:
Effects on your Bottom Line

2. Welcome ! Speaker Name
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Speaker Title
Speaker@sage.com

3. Our journey in this session….
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Fixed asset
depreciation
explained
Why does
fixed assets
depreciation
matter?
Business
challenges in
managing
fixed asset
depreciation
Finding a
better way

4. What is a Fixed Asset?
Fixed assets, also known as "tangible assets" or
property, plant, and equipment (PP&E), is a term
used for assets and property that cannot easily be
converted into cash.
Fixed assets can take the form of buildings,
machinery, computers and other electronic
equipment as well as office furnishings - even
assets that you build, like a hotel.
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5. What is a Fixed Asset Depreciation?
Fixed asset depreciation is systematic allocation of the cost of a fixed
asset over its useful life. The pattern of the annual depreciation charges
should attempt to match the pattern of benefits derived from that asset.
To depreciate an asset, companies usually follow a three step process:
1. How much did the asset cost?
• Asset cost + all costs directly associated with
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the acquisition of the asset
• Examples include delivery/shipping cost, handling
fees, import duties, installation charges etc.

6. 2. How long will it last
• The Physical Life is determined by how long the actual asset will last. Assets wear
out, and at the end of the physical life of a product, the value is assumed to be 0.
• The Economic Life or Useful Life of an asset refers to the period in which the asset
is expected to be used in the business. This can be shorter than the physical life, and
at the end of it’s useful life the product may have a Residual Value that can be re-covered
in the liquidation of the asset.
3. How do I write it off?
• Choose the most beneficial depreciation
method for your financial reporting.
• Allocate the costs of fixed assets over the
estimated useful life for tax reporting.
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7. Why it matters!

8. Why fixed asset depreciation matters!
• Managing your fixed asset data
The error prone process of managing your fixed assets
manually can lead to significant tax overpayments.
• Selecting the best depreciation method
Choosing the most favorable allowed depreciation method
directly effects your financial statements.
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• Regulatory Compliance
The always changing regulatory environment makes it difficult to
stay up to date, therefore creating a compliance risk.

9. Incorrect information and errors in
fixed asset management are a near
universal problem, resulting in
unnecessary tax
overpayments of 8% - 20%

10. Managing your fixed asset data
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11. What is a Fixed Asset Data Management?
How are you managing your fixed assets today?
Using manual processes and spreadsheets can be challenging!
• Complicated formulas and calculations must be created and maintained
• As assets are added or retired, manual
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adjustments have to be made
• Manual correction and consolidation of
multiple spreadsheets is time-consuming
and error-prone.
• No audit trail about who changed what or when

12. How well does this work for you?
65% of fixed asset data is incomplete,
inaccurate, or missing, and up to 5% of all
spreadsheet formula cells contain errors.
Source: Asset Management Resource, AMR
On average, 15% - 30% of the fixed assets on a companies’ books
have actually been retired, sold, discarded or are not in use. But
these companies are still paying tax and insurance for those assets.
Source: Scott Swarts, Paragon Systems
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13. Choosing the best
depreciation method
for your business

14. Depreciation Methods
Straight-line depreciation is the simplest and most often used method.
1. The company estimates the residual value of the asset at the end of it’s
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useful life.
2. The company will charge the same amount to depreciation each year
over that period.
Example
Cost: $15,000
Useful life: 5 years
Residual Value: $2,500
$15,000 - $2,500 = $2,500
5 annual
depreciation

15. Companies using the declining balance depreciation method expense the
asset at a constant rate, which results in declining depreciation charges each
successive period.
Double declining balance is a type of declining balance depreciation in which
depreciation rate is double the straight-line depreciation rate.
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Depreciation Methods
Example
Cost: $12,500
Useful life: 5 years
Residual Value: $0
Straight Balance Depreciation Rate: 20%
Double Declining Depreciation Rate: 40%
Year Double Declining
Depreciation
Asset Year-End
Book Value
1
$12,500 x 40%
= $5,000
$12,500 - $5,000
= $7,500
2
$7,500 x 40%
= $3,000
$7,500 - $3,000
= $4,500

16. Straight-Line Double Declining-Balance
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Year
Annual
Depreciation
Year-End Book Value
Annual
Depreciation
Year-End Book
Value
1
$12,500 x 20%=
$2500
$12,500 - $2,500 =
$10,000
$12,500 x 40% =
$5000
$12,500 - $5,000 =
$7,500
2
$12,500 x 20%=
$2500
$10,000 - $2,500 =
$7,500
$7,500 x 40% =
$3,000
$7,500 - $3,000 =
$4,500
3
$12,500 x 20%=
$2500
$7,500 - $2,500 =
$5,000
$4,500 x 40% =
$1,800
$4,500 – 1800 =
$2,700
4
$12,500 x 20%=
$2500
$5,000 - $2,500 =
$2,500
$2,700 x 40% =
$1,080
$2,700 - $1080 =
$1,620
5
$12,500 x 20%=
$2500
$2,500 - $2,500 =
$0
$1,620 x 40% =
$648
$1,620 - $648 =
$972

17. Other Depreciation Methods
• Annuity Depreciation is not based on time, but on a level of activity, for
example miles driven for a vehicle, or a cycle count for a machine. When the
asset is acquired, its life is estimated in terms of this level of activity.
• Under the Units-of-Production Depreciation method, the useful life of the
asset is expressed in terms of the total number of units expected to be
produced by the asset.
• The Group Depreciation Method is used for depreciating multiple-asset
accounts using straight-line-depreciation method. Assets must be similar in
nature and have approximately the same useful lives.
• Sum of Years Digits Method
• Units of Time Depreciation
• Composite Depreciation Method
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18. Maintaining regulatory compliance
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19. The challenge of regulatory compliance
• A business must ensure compliance with
all governmental rules and regulations.
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Do you know the meaning of:
• SOX
• MACRS
• IFRS
• IRC of 1986
• IAS 16

20. How MACRS works
• The Modified Accelerated Cost Recovery System (MACRS) is the
current tax depreciation system in the United States.
• Assets are divided into classes by type of asset. The cost of the
asset are recovered over a specified life by annual deductions for
depreciation.
• The Internal Revenue Service (IRS) publishes
detailed tables of lives by classes of assets.
• The deduction for depreciation is computed under
one of two methods (declining balance switching
to straight line or straight line) at the election of
the taxpayer, with some limitations.
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21. Finding a better way

22. You could use a spreadsheet, or…..
…you could automate fixed asset
management with a software solution
- like Sage Fixed Assets or Sage
Fixed Assets Online – solutions that
are specifically designed to help take
the headache out of fixed asset
management and fixed asset
depreciation.
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23. Sage Fixed Assets:
we’ve got you covered
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• Over 300,000 tax rules
already built in
• MACRS compliant
• Continuous monitoring
of tax law changes

24. Sage Fixed Assets Online
• Sage Fixed Assets Online is an online service that enables companies to
effectively manage the depreciation of their fixed assets. It provides the
necessary depreciation calculations for tax reporting, basic asset tracking,
and asset reporting.
• SFAO is delivered as a cloud service
– Anytime, anywhere access
– No local server installation
– Automated updates and maintenance
• SFAO is delivered under a subscription license
– One-time activation fee  $99
– Monthly subscription fee  starting at $19.99 per month
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25. #InspireTour
Stay connected!
We’re here to answer your questions!
Visit: www.SageFixedAssets.com
Call us at: 800-368-2405
Download our eBook: SageFixedAssets.com/ebook
Like us on Facebook: https://www.facebook.com/SageFixedAssets
Follow us on Twitter: https://twitter.com/SageFixedAssets

26. Thank you!