Reconciliation Entry 8 – Establishing Conventions for Bundled FAR Entries

In the last entry, we touched upon register adjustments related to additions. Potential adjustments can also be associated with (but are not limited to):

  • Removal of an asset that could not be verified during the physical count (referred to as a write down or write off)
  • Change of location, which can impact property tax
  • Allocation to the proper financial category, which may impact useful life and therefore depreciation

Another important concept to consider is the linkage of individual assets, referred to as component assets, to a group of assets. This concept is not related to the bundling issues previously addressed. Rather, this concept applies focus on assets that may stand alone versus those assets that must be joined (physically) in order to produce a single functional asset.

There are several thoughts to consider here when establishing the governing conventions. Conventions should be established that help to identify when a component asset should be depreciated separately from the group. One means of doing so: determine if the component asset can be (easily) physically verified.

Without a related convention, a common problem results in the recording of a component asset as an independent line item on a register, which are difficult to physically validate. Assets such as integrated circuit boards represent a good example. In this case a device would need to be shutdown and dismantled in order to verify the (internal) asset.