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Wednesday, 20 June 2012 14:36

 

The format of FAR entries

 

The format / details to be provided in a FAR generally depends upon the following factors:

A.  Nature of assets.

·        If moveable assets constitute a significant portion of total fixed assets, details will be necessary on their movement from one department / cost center / people to another.

·        Cost of assets. Greater control and security is required for costly equipment.

B.   Customized reports on fixed assets required by management.

C.  Disclosure norms / regulatory compliances as per statutory laws applicable to the entity.

D.  Extent of owned, and assets taken on lease / hire purchase.

E.   Requirements of insurance company.

F.   Location of fixed assets. If fixed assets are located at numerous locations, greater details will have to be given. In the case of a construction company, the assets are located at different work sites. These work sites maybe in different cities / countries / continents.

G.  Maintenance costs. Some fixed assets require regular servicing to keep them running in an efficient and satisfactory manner. It would be necessary to keep a tab on the maintenance costs, dates of servicing etc. during a stated period.

Maintenance of a FAR in a multi-national corporation (MNC) can be onerous and complex due to different regulatory and compliance requirements in each country and different currencies.

Generally, an MNC sets up a subsidiary in the country in which it intends to start operations. Maintenance of FAR is decentralized. The FAR is maintained per the company’s policy, and regulatory requirements which are country specific. If consolidation of holding company and its subsidiaries (whether domestic or foreign) is required by the law applicable to companies, and relevant Accounting Standards, the task may become a bit complex. The crucial point is related to selection of exchange rate for conversion of fixed assets. Most companies either use average annual rate or year-end exchange rate.

Similarly, for companies having their shares listed on American stock exchanges, the fixed assets are required to be stated in accordance with the requirements of US generally accepted accounting principles (US GAAP).

 
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