At first glance, keeping track of the value of your company's fixed assets looks like a simple task. Dig a little deeper, however, over a longer period of time, and you will notice how much your fixed asset values fluctuate. There are a host of factors that contribute to this fluctuation, and you’ll see that sometimes they’re a bit arbitrary – no two categories of assets depreciates at the same rate and even assets in the same categories can depreciate at different rates.
To simplify th
e process of fixed asset valuation, many managers think about assets as having a life cycle, much like that of a frog or a fish. Just like animals have unique life cycles that are shaped by their environments, assets have unique patterns of value and depreciation that are also shaped by their environments.
The location – literally the physical environment – of an asset is one factor that can have a drastic impact on the rate at which it depreciates. A steel building located within a stone's throw of the ocean, for example, is likely to depreciate in value much faster than an identical building located in the desert. This is because the ocean creates a harsher environment that will cause the steel to deteriorate more quickly.
How much/often an asset is utilized is another factor that impacts its rate of depreciation. Two identical trucks will not depreciate at the same rate if one is used weekly for light deliveries on flat roads while the other one makes daily deliveries of heavy loads in hilly country.
In fact, the variable amount of factors that can impact the depreciation rate of fixed assets is as limitless as the number of fixed assets available for use. This can be a source of headaches for managers, because knowing the value of fixed assets is essential for regulatory compliance and cost savings.
So, to recap: every fixed asset has a unique life cycle that determines how its value will change as your enterprise uses it, this life cycle can be influenced by a variety of external factors, and the number of external factors is almost endless.
As you can guess, this makes keeping track of the data required for accurate fixed asset valuation almost impossible to do manually. Fortunately, modern FAS software is designed with the complexities of life cycle asset management in mind.
At Oates & Company, we recommend Sage's line of FAS solutions because the software is not only more than capable of completing the job, it also offers ease of use.
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