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On-demand best practices SERIES

Three Strategies for Better


Fixed Asset Management
How effectively do your capital assets generate revenue? And how do you measure these
returns? Investors are watching.
effective management of fixed on the balance sheet for most large cor- opportunity to deduct certain soft costs,
assets can materially impact financial per- porations, many CFOs, tax directors and such as architectural and engineering
formance and shareholder value. When risk managers curiously don’t view fixed fees, consulting fees, broker fees, non-
you consider that the investment in fixed assets as an area of significant opportu- interest financing, investigative costs, site
assets is typically one of the largest items nity. While there is risk involved in fixed selection costs, environmental studies,
on the balance sheet (and, correspond- asset management, there are also oppor- training costs, and pre-opening costs.
ingly, depreciation expense is typically tunities – especially for tax efficiencies Companies that conduct a thorough
one of the largest expenses on the income and cash flow savings. analysis of these costs often find that a
statement), it’s clear that managing assets Reconciling assets and liabilities in a significant percentage of these costs can
wisely and understanding the tax implica- tax efficient manner can be quite a chal- be deducted currently for income tax
tions of decisions can improve your earn- lenge – the rules are complex and the purposes. Organizations are well advised
ings per share and ultimately enhance tax department often has limited time to to identify research credit opportuni-
shareholder value. spend addressing this issue. As a start- ties, including eligible expenses under
This white paper describes three strate- ing point, companies should begin by new regulations, and determine which
gies and corresponding tactics to help performing a thorough fixed asset review UNICAP methods result in a more favor-
corporations more efficiently manage focused on the following potential savings able capitalization policy for self-con-
their fixed assets throughout the asset opportunities: structed assets (this applies to any taxpay-
lifecycle in ways that can make a mate- n Misclassification of asset lives. ers that build property or have property
rial impact on financial statements. It Many companies misclassify leasehold built for them under contract for use in
explores both the benefits of taking a and land improvements, which can often their trade or business).
global view of fixed asset management be depreciated over shorter recovery n Late Capitalizations. Remember
and the rewards associated with employ- periods than the life of the building or that a company does not have to follow
ing these strategies. lease. Many companies are also unaware the same treatment for tax as it does for
of unique industry classifications which GAAP financial statement purposes (“the
Strategy 1. Identifying Tax can result in greater accelerated depre- books”); this means that if companies
Benefits for Capital Investments ciation; one-year depreciable assets that meet certain guidelines, they can further
Despite the fact that fixed assets rep- they may own; and bonus depreciation reduce their tax liability without tak-
resent the largest or second largest item opportunities. ing a hit on their financial statements.
n More favorable capitalization Comparing the GAAP recording date to
policies. Companies building large the date allowed for tax purposes may
VIEW THIS ON-DEMAND WEBCAST: facilities should review their interest result in additional first-year deprecia-
Sponsored by: capitalization method during the con- tion. (For example, accounting systems
struction period and make sure that the can record assets later than their tax
interest needs to be capitalized. Certain “placed in service” date.)
assets that are part of the building often n Assets which may be written off.
qualify for shorter recovery periods, and Companies with a significant amount of
2006
For more information - 2007
please Expiring Federal Tax Provisions
contact:
By Nancy Faussett, CPA interest on costs related to these assets fixed assets are well advised to take a hard
BNA Software, 1-800-424-2938, selection option 3
can be deducted currently – it does not look at this issue. When asked if their
Email: bnasmarketing@bna.com
have to be capitalized. companies perform an inventory of fixed
www.bnasoftware.com
Many companies also miss out on the assets, 29 percent of Business Finance

Although the Tax Relief and Health Care Act of 2006 extended many federal tax
56-8123 provisions that had either expired or were about to expire, there were several provisions
that were allowed to expire at the end of 2006 and many more that are scheduled to
0108 expire at the end of 2007, unless extended by new legislation. This article will give you a
brief description of each of these provisions.
advertiser sponsored webcast/white paper

webcast attendees said that they do so on a regu- their concerns and what locations they consider automation include reduced labor cost, better
lar schedule (i.e., annually); 45.2 percent do so to be high risk, and start there. This will provide controls, and better visibility – all of which adds
when required by an audit or other event; and the highest return on investment, and allows for up to better decision-making.
25.8 percent never perform an asset inventory. an assessment of the potential benefits for other Automation speeds up processing, reduces
Companies that do not take inventory of assets locations. the potential for human error, and applies
on a regular basis run the risk of overlooking 2. Tag assets with bar-code labels. Fixed policies as needed, which means reports are up-
assets being depreciated for GAAP or tax that no asset management software should be installed to-date, comprehensive and accurate. Accurate
longer exist and should be removed from both locally that supports tagging and scanning of and complete information about capital spend-
fixed asset and property tax records. assets as they are received. Assets can also be ing not only drives good business decisions, but
Companies undergoing renovations are par- scanned as they are damaged or disposed of to also helps finance explain results to analysts and
ticularly susceptible to overstating assets, since provide reports to accounting. investors.
they often neglect to take the replaced “ghost 3. Collect and enter additional relevant Consider the case of Sinclair Broadcast Group,
assets” off the books when adding the renova- data. Examples include location, condition, serial Inc. (SBG), which operates 58 television stations
tions. When this is the case, companies end up number, tag number, custodian, cost center, etc. in more than 20 states, manages nearly 70,000
paying property tax they shouldn’t need to pay 4. Reconcile inventory system with fixed asset records and has a fixed asset annual spend
and insuring assets they no longer own. assets sub-ledger. Once the initial physical of $20 million to $80 million. While accounting
n Credit and incentive opportunities. The inventory has been conducted, the resulting set activities – including asset management – are
potential for increased utilization of tax credits, of assets should be compared to the set of cur- performed locally, SBG conducts management,
research credits and incentives can yield prop- rently depreciating assets tracked in the fixed reporting, tax and budgeting on a centralized
erty and sales tax savings, as well as the poten- assets sub-ledger. This process will provide an basis. Before implementing a Web-based fixed
tial deferred recognition of income relating to accurate baseline that can be leveraged moving assets module from BNA Software, the compa-
those incentives. forward. Minor, incremental process changes ny’s distributed fixed assets processing was costly
such as scanning assets upon arrival / disposition and inefficient. Consolidated reports were dif-
Strategy 2. Real-Time Asset Visibility will make future reconciliations easy. ficult to create, and required a manual merge of
The use of fixed asset software to manage The end result is an ongoing reconciliation data across 58 data sources.
your fixed assets and depreciation calculations, process that yields tighter accounting controls; SBG investigated using its enterprise
in conjunction with a thorough asset inventory providing you with more confidence in the resource planning system’s fixed assets mod-
performed by an independent industry expert, auditability of the financial numbers on your ule to automate fixed asset processing, but
can provide a real-time answer to the question income statement and balance sheet. More accu- encountered difficulty due to the extremely
“Where are our assets?” rate fixed assets information also leads to more limited support for tax calculations in the ERP
Performing and maintaining an up-to-date accurate property tax calculations and additional system. In order to automate the fixed assets
asset inventory can contribute to a lower total benefits: Identifying and eliminating “ghost acquisition process for all functions (and gain
cost of ownership for organizations while simul- assets” or damaged assets during this process the ability to manage tax treatment for fixed
taneously helping to reduce their tax bill by iden- can reduce federal tax liabilities, personal prop- assets directly), the company decided to partner
tifying missing, damaged, or idle assets. Tighter erty taxes, and insurance premiums, and allows with BNA Software. Now, asset additions are
financial controls in turn provide an auditable companies to collect insurance money for lost or pulled directly from SBG’s ERP A/P module,
justification for asset balances and changes in damaged assets. The identification of idle assets and depreciation policies are immediately and
asset balances over a period of time. lets companies effectively re-use, repurpose or automatically applied for GAAP and tax. No
Consider that the property, plant and equip- sell assets, and at the same time may uncover additional work is required to consolidate,
ment (PPE) line on your balance sheet represents weaknesses in capital budgeting. since the data is complete and accurate all of
only a snapshot in time: depreciation to date the time. SBG now devotes less time to asset
based on historical cost. It’s updated for some, Strategy 3. Reducing Costs Through management, and enjoys a faster period close.
but not all dispositions, and it doesn’t tell you Automation Central visibility into fixed asset data allows for
much about the asset’s condition or usage – or if Integrating your accounts payable (A/P) and rapid review and adjustment as needed, and lets
it’s even there. fixed asset modules allows for the automated management focus on areas of concern.
In contrast, an asset inventory provides a cur- setup of new depreciating assets without user
rent (i.e., not historical) view of the firm’s capital intervention. As capital assets are purchased, For more information on how you can maximize
assets. Performing an asset inventory involves they are processed through A/P. In many corpo- your return on assets, contact …
the following four steps: rate scenarios today, the same information is also BNA Software, 1-800-424-2938, selection option 3
1. Identify target assets and locations manually entered into the fixed assets module Email: bnasmarketing@bna.com
for inventory. Talk to controllers and find out to set up depreciating assets. The benefits of www.bnasoftware.com

For more information on this webcast go to:


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