Grade 12, term 1, test 1 Flashcards
Start of letter:
[DATE]
[NAME OF PERSON]
[POSITION]
[ADDRESS]
[TOWN STATE POSTCODE]
Dear Ms/Sir
INTERNAL CONTROLS OVER NON-CURRENT ASSETS
Introduction:
It is important that you are aware of what valuable assets, such as your [asset], are worth to your business. Therefore, you will need to take all measures possible to prevent situations, like your current one, from occurring again in the future. To do this, the following controls need to be implemented.
Purchase of asset - RUNNING COSTS
Control processes must be secured to ensure [asset] bought are the best in terms of value for money, as well as suitability and lifetime running costs. [why buying the asset will benefit the business]. It is recommended the real cost of purchasing the [asset] is determined. This includes calculating the whole-of-life cost, transaction costs and non-cost factors. Whole-of-life costs include elements such as acquisition, operating, maintenance, alteration and support costs, as well as disposal. Transaction costs analyse planning the purchase, selecting the supplier and ordering/paying for the [asset]. Non-cost factors include considerations such as fitness for purchase, technical and financial issues, the benefit of buying the [asset] and the maintenance support available. The real cost will allow you to fit the expenses into your budget.
purchase of asset - FINANCE OPTIONS
After considering these factors, your business must decide how the [asset] will be financed. It is recommended that [business name] [finance option a.b. or c]
a) DEBT FINANCING (BUSINESS TAKE OUT LOAN FROM BANK)
b) EQUITY FINANCING (OWNERS CONTRIBUTING CASH)
c) LEASING (BUSINESS PAYS MONTHLY FEE TO USE ASSET)
the asset. [SENTENCE REGARDING WARRANTY AND END OF USEFUL LIFE IN TERMS OF FINANCE OPTION CHOSEN]. Your decision will be affected by your business cash flow. Therefore, [LIST TWO UNUSED OPTIONS] are also options.
Purchase of asset - QUESTIONS
In terms of price and suitability, your business needs to ask several questions to ensure the you are making the best purchase of [asset]. Questions include: who carries out the initial investigation into the most suitable [asset]? Is the supplier experienced? Are the [asset] viewed to work elsewhere prior to purchase? Do the [asset] come with a guarantee and have other users experienced problems? What are the expected running consts of the [asset]? How is the manual recording equipment currently being used going to be disposed of? Who is responsible for the final decision making of the [asset]? By asking these questions, your business will be well-informed of the your purchase. Hence, it allows you to have a general knowledge of buying the [asset], ensuring you get the best deal from your supplier.
Identification of asset
The identification of each [asset] is an important administrative control that should be implemented in your business. Each [asset] should be assigned a serial number, to be engraved on the [asset] and recorded. Which staff member has each [asset] should also be recorded. This ensures, if a [asset] has a fault, it can be recorded and the correct person has access to a spare [asset]. It also assists in safeguarding the asset; if a [asset] is lost, when found it can easily be identified who owns the [asset]. Over their useful life, it is predicted all [assets] will require some form of maintenance and repairs. Therefore, through recording serial numbers, repairs and maintenance can be done in an orderly fashion to ensure all staff members constantly have access to a [asset]. [NAME OF PERSON], you mentioned on finding no [asset] available, you didn’t know who was in possession of them. Serial numbers would allow your business to trace the location of all [asset] and ensure the correct number of [assets] are being held on premises.
Storage and security
Storage and security are important factors to ensure your [asset] have appropriate protection. [MAKE COMMENT ABOUT CURRENT STORAGE AREA - GOOD AND/OR BAD], this is inadequate/sufficient protection for a valuable asset. Instead of using [CURRENT AREA], your business should invest in a secure storage space, such as a safe under lock and key. Authorized personnel only should have access to the key. The safe should be kept out of sight from the main office area. An alarm system should be installed to ensure personnel are easily alerted if the storage area is being breached. I these security practices are undertaken and the [asset] continues to go missing, security personnel may also be hired. However, this control is necessary if the combination of the safe and alarm avert the issue of the missing [asset].
Documents and titles storage
To ensure all [assets] can be assessed during their warranty; guarantees, receipts and titles should all be stored safely. These documents should be stored electronically and in hard copy. It is advised the hardcopies are clearly labelled and stored in a filing cabinet for easy access. Similarly to the [asset], these papers should be kept under lock and key, available to authorised personnel only. Storing these documents will allow your business to prove ownership of the [asset] if the need arises. [SENTENCE HOW CONTROL WILL HELP CURRENT SITUATION].
Insurance
It is strongly advised your business invests in insurance for the [asset]. Insurance for the [asset] should be assessed annually. This process should take into account the current value of the asset i.e. depending of what year of its useful life its reached compared to the insurance being paid. Overall, this will asses the cost versus benefits of the insurance. Insurance is an important control for your business in case of damage or theft to the [asset]. This will prevent your business from needing to pay any unexpected fees that could affect cash flow.
Maintenance program
A maintenance program should be implemented to ensure the [asset] is kept at the highest level possible. Maintenance services should be easily accessible to al staff so if they have a problem, they know the procedure to getting it fixed efficiently. If it fits in your budget, an option would be to hire a [area] specialist to have onsite. As aforementioned, this would ensure problems could be averted promptly. This employee could also be the authorised personnel responsible for checking out [asset]. Regardless of your decision to hire a specialist, the [asset] should be regularly services and repaired to ensure the best return can be made at the end of its useful life.
Disposal
Disposal procedures are an integral part of the business policies. This guarantees your business can attain the best price for their [asset] at time of selling. Your business will have to consider the options of selling, trading or dismantling the [asset]. If the previous recommendation of [finance option] the [asset] is implemented, your business will [result] at the time of disposal. Your business will also have to implement a disposal procedure to get rid of the formerly used manual order form equipment. To ensure valuable assets aren’t disposed of before the end of their useful life, disposal should be restricted to authorised personnel only.
Property, plant and equipment register
The property, plant and equipment register must be completed to act as a subsidiary ledger. A subsidiary ledger is a group of similar accounts whose combines balances equal the balance in a specific ledger account. A control account id the general ledger account summarising the subsidiary ledger account balance. The control aspect serves to protect honest employees and identify those responsible for theft, misuse or error of judgement. A competent control sytem would include procedure involving all the above mentioned controls, some of which include the purchase of the [asset], the location of the [asset] and their insurance value.
Conclusion
It is hoped that once these controls are implemented, you will have no further problems. If you do, however, please do not hesitate to contact me.
Yours sincerely,
Phoebe Cuskelly
{POSITION}
