Term 1- Controls over non-current assets Flashcards
Letter Head
Date
Name
Position
Address
Town, State Post Code
Intoduction
Dear, NAME
INTERNAL CONTROLS OVER NON_CURRENT ASSETS
It is important that you are aware of the valuable assets, property, plant and equipment, such as computers in your business. Therefore, it is essential that you take all possible measures to prevent a situation, like your one at present, occurring again. To do this, the following controls need to be implemented.
Purchase of Assets- CONTROL PROCEDURE
Currently, the business HAS NOT established a control procedure required to secure the best purchase in terms of money, as well as suitability and life-time running costs. The real cost of purchasing an asset should be determined, considering: whole of life costs, transaction costs and non-cost factors. Whole of life costs consist of elements such as: operating, maintenance and disposal costs. Transaction costs comprise of elements such as planning the purchase, selecting suppliers and ordering/paying for the purchase. Non-cost factors include elements such as technical and financial issues, fitness for purpose and availability of maintenance and support.
Purchase of Assets- QUESTIONS
Furthermore, the business should consider the following questions when purchasing an asset: How long is the useful life of the asset? Is the guarantee viable? What problems have other user’s experienced? Considering these costs and questions, will allow the business to make an informed decision, ensuring the purchase meets the needs of the business.
Purchase of Assets- FINANCING
The business HAS NOT considered the options available for purchasing a non-current asset, having paid for all of the laptops outright. Some of the alternate options for large capital purchases include: debt financing, equity financing and leasing. In this case it would be better to
Short Useful life- lease- save on disposal
Purchase of Assets- AMOUNT PURCHASED
Furthermore, the business should not require (___) LAPTOPS, as there are only (__) employees. The payment of these (__) LAPTOPS could be used more effectively elsewhere; additionally, saving on disposal costs.
Identification
Presently, the business HAS NO form of identification for each individual laptop. This makes it DIFFICULT to determine who has been allocated to each device. The identification of each laptop is an important administrative control that SHOULD BE implemented in your business. Each laptop SHOULD BE assigned a serial number, which is engraved on the laptop and recorded on the Property, Plant and Equipment Register. The staff member who has each laptop SHOULD BE recorded. This ensures that if a laptop has a fault, it can be recorded, maintained and repaired; making sure that the correct person has access to the spare computer. This ensures that the laptops of the business are safeguarded against theft and its location easily traceable at all times.
Document and Title Storage
DOCUMENT AND TITLE STORAGE
At present, the business has NO procedure for the safe storage of documents; NEGLECTING the administrative control of document and title storage. It is important that documents such as guarantees, receipts and titles should be stored safely and in a manner that enables documents to be located easily. This will allow for minimal disruption within the business if the LAPTOPS incur damages or are stolen, requiring the purchase documents for insurance
Storage and Security
Currently, the business has NO form of security of for the LAPTOPS, (WHERE ARE THEY KEPT). This makes it DIFFICULT to ensure the safety of the assets; NEGLECTING the administrative control of asset storage and security. FURTHER DETAILS. It is essential that the LAPTOPS have appropriate protection, such as locks, alarm systems and security cameras. Additionally, the business should introduce security personnel. This ensures that the LAPTOPS are safe guarded from theft.
Insurance
The business HAS NOT taken out insurance on the LAPTOPS, posing a liability if something were to happen; DISREGARDING the administrative control of insurance. It is essential that the appropriate insurance for the asset, be taken out. The current values of the asset and the cost versus benefits of insurance should be considered and assessed annually. This ensures that the business will be able to make an insurance claim, in the case of theft or breakage.
Maintenance Program
Presently, the business DOES NOT have a procedure to maintain the LAPTOPS; DISREGARDING the administrative control of having a maintenance program. This makes it DIFFICULT to ensure that the LAPTOPS are in top condition, resulting in a shorter useful life. It is important that the laptops are serviced regularly and repaired to ensure a longer useful life.
IF EXCESS LAPTOPS WHERE PURCHASED
Furthermore, the business will no longer require (__) spare LAPTOPS, saving costs.
Disposal
At present, the business DOES NOT have a procedure for the disposal of assets; NEGLECTING the administrative control of disposal. This means that the business may have a GREATER disposal cost than required. It is recommended that the business implement procedures to obtain the best possible price: considering whether the asset should be sold, traded or dismantled. Additionally, only authorized personnel should be involved in this process. This procedure will ensure the best selling price of the asset.
Property, Plant and Equipment Register
Currently, the business DOES NOT utilize a Property, Plant and Equipment (PPE) Register, meaning that the business is UNAWARE of asset information, such as: cost, maintenance, identification number and depreciation. This results in a UNORGANISESD business. The PPE register is an example of the concept of control accounts and subsidiary ledgers. The business should complete a register for each of its non-current assets. It serves to protect honest employees and identify those responsible for theft, misuse or errors of judgement. The use of a PPE register will prevent theft, safe guarding the assets; as it will be easier to identify where the assets are and where they should be.
Conclusion
It is hoped that once these controls are implemented that you will have no further problems. If you do, please do not hesitate to contact me.
Your sincerely,
Nicole Mesquita-Mendes
POSITION- FIRM
Whole of Life Costs
Operating, Maintenance and Disposal Costs
