The Fixed Assets module is a complete front-end module of Oracle FLEXCUBE that captures and tracks the characteristics of the fixed asset of your bank. Using this module you can clearly identify the various applicable events and manage all the activities during the assets useful lifecycle.
Fixed asset, also known as property, plant, and equipment (PP&E), is a term used in accountancy for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed.
Fixed assets normally include items such as land and buildings, motor vehicles, furniture, office equipment, computers, fixtures and fittings, and plant and machinery. These often receive favorable tax treatment (depreciation allowance) over short-term assets.
Fixed Assets are items of property, plant and equipment engaged by a business entity in the generation and expansion of revenue. According to International Accounting Standard (IAS) 16, Fixed Assets are assets whose future economic benefit is probable to flow into the entity, whose cost can be measured reliably.
It is pertinent to note that the cost of a fixed asset is its purchase price, including import duties and other deductible trade discounts and rebates. In addition, cost attributable to bringing and installing the asset in its needed location and the initial estimate of dismantling and removing the item if they are eventually no longer needed on the location.
Depreciation is simply put to be the expense generated by the use of an asset. It is the wear and tear of an asset or diminution in the historical value owing to usage. Further to this, it is the cost of the asset less any salvage value over its estimated useful life. It is an expense because it is matched against the revenue generated through the use of the same asset. Depreciation is usually spread over the economic useful life of an asset because it is regarded as the cost of an asset absorbed over its useful life. Invariably the depreciation expense is charged against the revenue generated through the use of the asset. The method of depreciation to be adopted is best left for the management to decide in consideration to the peculiarity of the business, prevailing economic condition of the assets and existing accounting guideline and principles as implied in the organizational policies.
The primary objective of a business entity is to make profit and increase the wealth of its owners. In the attainment of this objective it is required that the management will exercise due care and diligence in applying the basic accounting concept of “Matching Concept”. Matching concept is simply matching the expenses of a period against the revenues of the same period.
The use of assets in the generation of revenue is usually more than a year- that is long term. It is therefore obligatory that in order to accurately determine the net income or profit for a period depreciation is charged on the total value of asset that contributed to the revenue for the period in consideration and charge against the same revenue of the same period. This is essential in the prudent reporting of the net revenue for the entity in the period.
The product definition function, the mainstay of Oracle FLEXCUBE’s design, enables you to create products for specific fixed asset that you set up. The module gives you the flexibility to define components (charge), restrictions (branch), preferences, events and accounting entries into ‘Classes’. When defining a product, you merely need to associate it with the different classes that you have built.
This chapter contains the following sections:
Definition of Classes
In Oracle FLEXCUBE, a ‘Class’ embodies a generic set of attributes. A class could represent:
As part of your one-time set up, you can define several sets of classes of a particular type. In Oracle FLEXCUBE, therefore, you do not have to specify restrictions, preferences, and components every time you create a product. You only need to associate the different set of classes that you have already maintained.
This feature eliminates redundancy, and saves processing time.
Note
The process to create a class is discussed in the Procedures User Manual of Oracle FLEXCUBE.
Creating Products
When setting up the module, you can define the various parameters for the assets. For each product, you can also define ‘attributes’, or in other words, the terms and conditions. When a user at the bank actually processes a fixed asset, it can be associated with a product. The asset acquires the terms defined for the product that it involves. (However, you can allow a user to change the inherited attributes of an asset for specific transactions.)
Processing Depreciation
The depreciation charge processing will be done as part of the End of Day and Beginning of Day processing. This will process all the assets for depreciation depending on frequency of the depreciation that you specify in the ‘Asset Category – Rule mapping maintenance’ screen.
The Depreciation rate can be maintained in Oracle FLEXCUBE for a combination of asset category and the location where the asset is placed. Separate rates can be maintained for computing depreciation for tax and book purpose.