Task Part 1 the ASSET REGISTER

Assessment – Asset Records and Management

Unit Name: Manage Physical Assets

Unit Code: THHGLE16B

Student’s name: Emerson Domingo

Trainer’s name: Lenka Frnova

Management Summary In order to solve the problem of Regency Hospitality P/L with regards to the recording of the physical asset of the business the management should record all relevant asset information in the physical asset register. This register is the most important documents of the business, and is usually maintained by the chief accountant and kept secure at all times, along with other supporting documents that relate to the business’s financial and taxation issues. Management should be able to program the maintenance of asset to accomplish the various types of maintenance with the minimum disruption to the business. Management must ensure effective communication takes place with any persons likely to be affected, relevant heads of department and senior management so that all factors related to programming the asset maintenance are considered. Programmed asset maintenance must complement the activity level of our business. Effective planning will assist in preventing disruption to the business and customers. It should include consideration of timing, cost and effect on the business objectives. Management should be able to work within a budget and be able to develop budgets for the maintenance of physical asset. The maintenance department is solely a cost centre, cross-subsidized by revenue-earning departments. Every cent saved or overspent in the maintenance budget is another cent added to or deducted from the business’s overall operating unit. Budgets should be made to fund the costs of the business such as replacement of an existing vehicle with a new one or the purchase of a new computer with software relevant to the business and improvements to the toilets and to the staff room facilities.

Task Part 1 – THE ASSET REGISTER Introduction

In order to solve the problem of Regency Hospitality P/L with regards to the recording of the physical asset of the business the management should record all relevant asset information in the physical asset register. This register is the most important documents of the business, and is usually maintained by the chief accountant and kept secure at all times, along with other supporting documents that relate to the business’s financial and taxation issues.

I. Asset Register

The physical asset register is an important part of the internal control system of physical assets. Physical assets require just as much control over the purchase, storage and disposal as any other of the business’s assets because of the high initial expenditure on them and the need for accountability. One way to record the asset details and purchase details; depreciation and reconciliation; and records of asset maintenance are to have three cards for a single asset – one for each of the aspects that need to be recorded for the asset. Each card will be headed with the same asset number, name and description. By placing the same asset number on the three cards we can use the number to cross reference details such as depreciation schedule and maintenance records. The advantage of this is that we have plenty of space for asset depreciation and maintenance records per asset.

II. Asset Labeling

Asset should be labeled in accordance with its class. And such asset labeling should be accompanied by its respective asset number or code. For example, Laptop Computer is labeled as IT Equipment – Laptop with asset number 001. Computer printer will be labeled as IT Equipment - Printer with asset number 002. Such asset labeling will be useful for the management in easily identifying the assets based on its class. And such asset label and number will be use in reconciling with asset register.

III. Asset Register Headings

Asset Name:______Serial Number:______Asset Number (Code):______Cost:______Description & Model:______Location:______Date Details Asset Accumulated Depreciation Dr Cr Balance Dr Cr Balance

The asset register will have the following heading as illustrated on the above table. This will include the asset name with its corresponding serial number and asset number. This will also be included in the other two cards for the same asset in order to easily identify the asset for the depreciation card and maintenance card. The heading also includes description and model just in case there is two or more asset of the same item such as computers. Location should also be included in order for the management to know where the asset is or to what department in the company it is assigned. Finally, cost should be identified because it is useful in determining and calculating its depreciation.

IV. Depreciation of Asset

There are two common methods we can use for depreciation they are the straight line method and diminishing value. The straight line method depreciates an equal portion over the useful life of the asset. To calculate the depreciation amount the residual value is subtracted from the original cost of the asset. The result of this is divided by the years of useful life. The information that the management require to use this method are the original cost of the asset including associated costs of delivery, installation, etc; estimated life of the asset; and estimated residual value of the asset. For example, the management purchased laptop computer for the front office at a cost of $5,000 with an additional delivery cost of $400. The estimated residual value is $1,400. Depreciation would be calculated as follows: $4,000 Annual depreciation amount = 5 = $800

The diminishing balance method also known as the reducing balance method uses uniform rate of depreciation or percentage that is applied to the cost of the fixed asset which has been reduced by any accumulated depreciation. The information that the management require to use this method are original cost of the physical asset including other expenses; accumulated depreciation; and percentage rate of depreciation to be applied. For example, the management purchased new furniture on July 1 for $30,000. Estimated residual value is $12,000. The percentage rate of depreciation is 20% of the diminishing balance and company policy states that all furniture must be sold after four years. Depreciation by diminishing value method is calculated over the life of the furniture as follows:

Year Basis for calculation Amount of Diminished balance depreciation 1. 20% of $30,000 $6,000 $30,000-$6,000=$24,000 2. 20% of $24,000 $4,800 $24,000-$4,800=$19,200 3. 20% of $19,200 $3,840 $19,200-$3,840=$15,360 4. 20% of $15,360 $3,072 $15,360-$3,072=$12,288 Final adjustment $288 Residual value $12,000 V. Disposal of Any Asset Each Month

There comes a time when physical assets need to be replaced for one reason or another. When disposal of assets is necessary, management have to consider options that are available for disposing of the business’s physical assets; details that have to be recorded for financial and legal compliance reasons; and how and where to record the details of the disposal of assets. When disposing of an asset, management must adopt similar procedures used when the asset was purchased. The management must ensure that authorization; means of disposal and collection of payment of the disposed asset are recorded. Disposal of an asset are shown in both the asset register records and the financial books of the business. A separate asset reconciliation card, referenced by asset number from the main asset record card may be used in the asset register. Below is an example of asset reconciliation card: Asset Reconciliation Card Asset Name: Company Vehicle Serial Number:2008-001-123 Asset Number (Code): CV-001 Date sold: December 31, 2007 Description & Model: Ford Ute Disposal value: $4,000 Location: Home office Book value: $6,000 Estimated life: 3 years Depreciation method: Straight line Depreciation Expense: Dep. Exp. Accumulated Date Details Asset Depreciation Dr Cr Balance Dr Cr Balance 1/7/04 Vehicle 20,000 20,000Dr 30/6/05 Dep. Exp. 4,000 4,000Cr 30/6/06 Dep. Exp. 4,000 8,000Cr 30/6/07 Dep. Exp. 4,000 12,000Cr 31/12/07 Dep. Exp. 4,000 14,000Cr Disposal Account 20,000 0Dr 14,000 0Cr The asset reconciliation must be closed to show a zero value. In the example above, you can see that when the asset is disposed of the value has been transferred out of the register and the accumulated depreciation has been written to the disposal account. The depreciation expense proceeds from the sale of assets and the closing balance accounts should agree with the ledger accounts of the business. By completing the reconciliation on a regular basis, the management can avoid problems building up in heavy workloads at the end of the financial year.

VI. Documents to Support Asset Register The documents needed to support the asset register are invoice, ledgers and other financial documents.

VII. Two Asset Records

Asset Register Card Asset Name: Company Vehicle Serial Number:2008-001-123 Asset Number (Code): CV-001 Cost: $20,000 Description & Model: Ford Ute Location: Home office Accumulated Date Details Asset Depreciation Dr Cr Balance Dr Cr Balance 1/7/04 Vehicle 20,000 20,000Dr 30/6/05 Dep. Exp. 4,000 4,000Cr 30/6/06 Dep. Exp. 4,000 8,000Cr 30/6/07 Dep. Exp. 4,000 12,000Cr 31/12/07 Dep. Exp. 4,000 14,000Cr

Note: in this example we used the straight line method of depreciation. Asset Register Card Asset Name: Furniture Serial Number:2008-002-124 Asset Number (Code): F-002 Cost: $30,000 Description & Model: Manchester Location: Home office Accumulated Date Details Asset Depreciation Dr Cr Balance Dr Cr Balance 1/7/04 Furniture 30,000 30,000Dr 30/6/05 Dep. Exp. $6,000 6,000Cr 30/6/06 Dep. Exp. $4,800 10,800Cr 30/6/07 Dep. Exp. $3,840 14,640Cr 31/12/07 Dep. Exp. $3,072 17,912Cr Note: in this example we used the diminishing value method of depreciation. Below is the computation of the depreciation:

Year Basis for calculation Amount of Diminished balance depreciation 1. 20% of $30,000 $6,000 $30,000-$6,000=$24,000 2. 20% of $24,000 $4,800 $24,000-$4,800=$19,200 3. 20% of $19,200 $3,840 $19,200-$3,840=$15,360 4. 20% of $15,360 $3,072 $15,360-$3,072=$12,288 Final adjustment $288 Residual value $12,000

Task Part 2 – ASSET MANAGEMENT

Introduction

Management should be able to program the maintenance of asset to accomplish the various types of maintenance with the minimum disruption to the business. Management must ensure effective communication takes place with any persons likely to be affected, relevant heads of department and senior management so that all factors related to programming the asset maintenance are considered. Programmed asset maintenance must complement the activity level of our business. Effective planning will assist in preventing disruption to the business and customers. It should include consideration of timing, cost and effect on the business objectives.

I. Asset Register with Maintenance Schedule

Asset Register – Maintenance Card Asset Name: Company Vehicle Serial Number:2008-001-123 Asset Number (Code): CV-001 Cost: $20,000 Description & Model: Ford Ute Supplier Details: Ford Footscray Location: Home office Contact Number: (03)9266 0488 Details Accumulated Date Maintenance Details Depreciation Last Next Incident Date of Dr Cr Balance Service Service Report Incident

Asset Register – Maintenance Card Asset Name: Furniture Serial Number:2008-002-124 Asset Number (Code): F-002 Cost: $30,000 Description & Model: Manchester Supplier Details: Office Works Location: Home office Contact Number: (03)9265 0866 Details Accumulated Date Maintenance Details Depreciation Asset Last Service Next Incident Date of Dr Cr Balance Service Report Incident

II. Pro-forma Asset Name: Furniture Serial Number:2008-002-124 Asset Number (Code): F-002 Cost: $30,000 Description & Model: Manchester Supplier Details: Office Works Location: Home office Contact Number: (03)9265 0866 Environment Condition Performance Safety Front Desk Department Excellent Excellent Good Asset Name: Company Vehicle Serial Number:2008-001-123 Asset Number (Code): CV-001 Cost: $20,000 Description & Model: Ford Ute Supplier Details: Ford Footscray Location: Home office Contact Number: (03)9266 0488 Environment Condition Performance Safety Accounting Department Excellent Excellent Good

III. Recommendations

The assets below are specialist maintenance tasks and require people with specialist knowledge, skills and equipment. The on-site maintenance team may not have the necessary skills, knowledge, equipment or even the time in their already busy schedule. Outside providers must maintain the following:  All electrical equipment  Refrigeration and freezer equipment  Pest control program  Garbage disposal  Landscaping  Recycling  Elevators Managers of physical assets will have to consider the cost-to-benefit of outsourcing any maintenance task and must carefully consider all advantages and disadvantages before making decision. There are however, times when the manager has no choice but to outsource specific maintenance tasks. For example, when newly purchased assets are under manufacturer’s guarantee or the equipment needed to perform the maintenance is very expensive to buy, making it an uneconomical for the business to maintain the asset using in-house staffs. IV. Memo

Memorandum Number: 06

Date: May 23, 2008

Attention: Maintenance Unit

Subject: Daily Maintenance of the Pool

All maintenance unit staffs are hereby inform that effective May 26, 2008 the pool must be maintained daily. Make sure that it is properly vacuum, skim and backwash. Every staff assigned should fill up properly the asset maintenance record and keep it up to date.

Thank you for your usual cooperation.

Emerson Domingo Manager Task Part 3 – MAINTENANCE BUDGET

Introduction

Management should be able to work within a budget and be able to develop budgets for the maintenance of physical asset. The maintenance department is solely a cost centre, cross-subsidized by revenue-earning departments. Every cent saved or overspent in the maintenance budget is another cent added to or deducted from the business’s overall operating unit. Budgets should be made to fund the costs of the business such as replacement of an existing vehicle with a new one or the purchase of a new computer with software relevant to the business and improvements to the toilets and to the staff room facilities.

I. Budget Proposals

Capital Budget Capital Items Budget Target Date Actual Variance Refurbishment Improvement of toilets $7,000 April Total refurbishment $7,000 Purchases Vehicle $35,000 March and June Computer with software $15,000 November Total purchases $50,000 Total capital budget to date $57,000

II. Reasons for Specific Proposals The management should always make sure and monitor that physical assets are well maintained. And if there are improvements to be done or new assets to be procured for maintaining the business management must proposed budgets for these. For example the business’s now needs to replace old vehicle; buy new computer with software and improve the toilet facilities. Budgets should be made to fund the costs of the business such as replacement of an existing vehicle with a new one or the purchase of a new computer with software relevant to the business and improvements to the toilets and to the staff room facilities.

III. Sources of Fund

Capital projects such as the above budget proposal are funded out of the business’s capital budget.

IV. Insurance

One of the insurance that the management may consider that suit these assets is Allianz.