Ensure that the assets recognized are in fact in use and assess their condition

Your company may own many or very few assets. Regardless, it’s important to know their condition, their operating capabilities and their actual usage. When you’ve ensured that the assets do exist, you have made the first essential step. The next step would be to assess their usefulness for the business and its operations.  

The ways to do that are as follows:

  1. Mapping the processes you use a specific asset and gaining an understanding of whether these operations are still relevant for the business (i.e. there may be a production line or equipment for something your company does not produce any longer);
  2. Once you’ve eliminated assets in the previous step, it’s now time to evaluate whether the remaining assets are in use. You may be producing the items an asset is used for, but are you really using this asset? It is possible you’ve got it already replaced but the asset is still within your books and existing;
  3. Now that you’ve eliminated assets meant for specific process no longer relevant and assets that aren’t used for still relevant processes, there’s one last thing to do. It’s about measuring the condition of assets in fact being used. Measuring the condition or assessing it is important for obvious reasons – understanding whether any repair needs to be carried out (understanding the requirement for additional funds, outage of production etc.) and measuring for any needed changes in the assets useful life. For an example if within the books we say we’ll use the asset for say 3 years, but when inspecting the condition of the asset (perhaps also specified worked hours etc.), it may be so that there’s just one year left. As such, the depreciation of the asset should be much faster. Or vice a versa, when we assess that we are going to use the asset for 5 years resulting in decreased depreciation expense.

So it’s not just understanding whether the assets are still there, but also understanding whether they’re still good and necessary for the business.