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.
The Componentization is required as per IAS-16 and also IFRS. The rationale behind componentization is that various components of “Property Plant & Equipment (PPE)” may not have identical useful lives. Some may wear out/depreciate at faster rate than other components or may have higher rate of obsolescence than others.
Stock audit or inventory audit is a term that refers to physical verification of a company or institution's inventory assets. Every business organization needs to perform an audit once a year to update and ensure that the physical stock and the computed stock match.
This scheme under Foreign Trade Policy allows technological up-gradation of the indigenous industry. Export Promotion Capital Goods (EPCG) Authorizations are issued by licensing authority – Director General of Foreign Trade (DGFT) based on the certificate issued by an Independent chartered engineer.
Verification of fixed assets consists of an examination of related records and physical verification. The auditor should normally verify the records concerning the documentary evidence and by evaluation of internal controls. Physical verification of fixed assets is primarily the responsibility of the management.