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How to Manage Fixed Asset Disposals Better?

7/29/2020

 
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It is often a challenge for Finance Departments to keep accurate fixed asset accounting records because operating departments often do not notify the Finance Department when an asset is disposed of.

​This happens because:
  • Operating department personnel may not be aware they are supposed to notify the Finance Department; and/or
  • Inadequate written policies and procedures, and related training; and/or
  • No standardized form or other documentation of disposals.​

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Governments that handle accounting for disposals well typically have the following procedures when a fixed asset is disposed of:
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  • A Fixed Asset Disposal Form is completed by operating department personnel, describing how, when, and why the asset was disposed of.
  • The Fixed Asset Disposal Form is reviewed and approved by department management and forwarded to the Finance Department.
  • Finance Department personnel review the Fixed Asset Disposal Form and prepare a journal entry to remove the asset from accounting records.
  • Finance Department management reviews the Fixed Asset Disposal Form and approves the journal entry.
  • Finance Department personnel post the journal entry and remove the asset from the accounting records.
The Fixed Asset Disposal Form usually contains the asset identification number, asset description, serial number, method of disposal, date of disposal, and reason for disposal. Get a sample Fixed Asset Disposal Form that can be tailored to your government’s circumstances (click the link above to download and view the plan in editable Excel-format).

Disposals include getting rid of an asset by selling it, donating it, sending it to recycling, sending it to trash, having it stolen, having it demolished via fire or other disasters, or simply being unable to locate it.
Depending on the government’s policies, “disposal” may also include assets that are no longer utilized, obsolete, or used for spare parts.

For the disposal of grant-funded assets, be sure to consider the grant requirements. Many grants require proceeds from the sale of grant-funded assets to be used in the funded program. For some federally funded assets, the Division must report the sale of an asset acquired with federal grant funds to the granting agency and in some circumstances remit the proceeds to them.

For assets that cannot be located, operating department personnel should be responsible to investigate. The investigation should include searching for the physical asset in the department, searching for it in other locations/departments where it may have been used or transferred to, searching government records for evidence of its whereabouts, and discussing with other personnel their recollection of the asset. If after the investigation the asset still cannot be located, operating department personnel will prepare a Fixed Asset Disposal Form and submit to the Finance Department for removal from the accounting records.



If you have more questions related to fixed asset disposals, feel free to reach out to Kevin directly:

Kevin Harper, CPA
kharper@kevinharpercpa.com
(510) 593-503
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    Kevin W. Harper is a certified public accountant and has decades of audit and consulting experience, entirely in service to local governments. He is committed to helping government entities improve internal operations and enact controls that will minimize risk and improve day-to-day functions.​

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