MyCIMA

Fixed assets & low value equipment - definition & accounting

Replies : 4

The definition given to a tangible fixed asset per PSR15 includes the statement that the asset "is held for...... administrative purposes on a continuing basis".  Where low value equipment (ie satellite phone, laptop, copier/scanner - typically under £1000) is purchased and is deemed not to hold any long term value owing to its location (volatile or inhospitable location), subject to the notes to the entity's accounts, can it avoid the definition of a tangible assed and be costed directly to the P&L.  In what, if any, instances would it have to be capitalised and immediately depreciated in full?

Expected Useful Life / Materiality

Whether the assets meet the definition of a tangible fixed asset there are two judgements that you need to make that would determine whether the cost is expensed immediately or written off over a longer period.

Firstly if the asset meets the definition of a tangible fixed asset the requirement is to depreciate the asset over its expected useful life.  If this useful life is reasonably expected to be less than one year then the asset should be expensed directly to P&L.  The location and security of the assets could be a factor to be taken into account when assessing the expected useful life 

Secondly, a judgement needs to be made regarding the materiality of capitalising low-value items.  Most organisations have a cut-off point below which assets would not be capitalised because the benefit of this disclosure does not outweigh the cost.  The cut-off point would vary from one organisation to another but £1000 does not seem unreasonable to me.

Possession?

Whether capitalised or not , 'how good is the entities security of its prpoperty?'

Cliff moggs

Fixed Assets/Materiality & Possession

Thanks - the logical approach prevails but I had been unable to verbalise it sufficiently succinctly to close a debate - the point re benefit outweighing cost is useful.

Cliff - I think I got the response I needed, however to answer your query, security of property is generally not good.  Remote and sometimes volatile field location with high staff turnover & high incidence of damage or loss, although some items may remain in service for 2-3yrs whilst others (of same type) last only months.

Items that can 'walk'

Elizabeth just picking on 'high turnover'. See no reason for employess to be made responsible for companies assets regardless of accounting treatment. Replacment cost is money (both for the person and the equipment). Do your 'employee contracts ' spell out consequences for 'issued' items that if not returned .............................there can be a charge and right to deduct from any final compensation payments. Best regards Cliff Moggs