Fixed Assets Componentization
Separation of the Fixed Asset into various parts can have significant benefits for the company in asset tracking and fixed asset amortization.
Componentization requires each part of a fixed asset with a high cost to the total cost of the item to be depreciated individually. Componentization requires companies to allocate the amount initially recognized as an asset to be split into parts and then depreciated separately. Separation of the Fixed Asset has a significant impact on the business in tracking assets and amortizing fixed assets.
Organizations, whether service or product-oriented, for-profit or non-profit, all have assets they need to buy, utilize and deploy to generate output, turnover, or outcomes that provide value. Fixed assets like Machinery, furniture, and various types – have a fixed life and depreciation cycle. The objective of any business is to achieve maximum productivity and asset value realization to be profitable. Therefore, appropriate tracking, care, and maintenance become an integral part of the continued use of these assets.
However, in certain assets, the cost of individual components may be a significant portion of the overall cost. In most cases, asset componentization is frequently used to achieve maximum productivity and make a significant difference in the balance sheet.