Fixed Asset vs. Expense

Discussion in 'Technical Queries' started by Augu, Jul 25, 2011.

  1. Augu

    Augu

    Joined:
    Jul 25, 2011
    Messages:
    1
    We are a $8M company. Our previous CFO has updated our fixed asset policy that we only record any item which costs equal to or more than $2,000 as an fixed asset. Any purchase (for each unit) below this amount will be expensed. On one hand, this saves a lot of time on our month end process. On the other hand, I have found that this amount is very high to categorize items in the fixed asset and I can only see one or two items the most a year to be qualified.

    We have recently purchased a batch of chairs which cost us more than $8,000. Since each chair costs only $300-$400/each and based on our policy, we should expense the entire transactions. However, I personally feel that this should have been a fixed asset since this creates value for the company for many years.

    I am considering to modify our company fixed assets and I am debating on some details:
    1. Will that be okay to determine the dollar amount based on "per transaction"? Like the example I have above that we purchased a batch of chairs.
    2. What will be a reasonable dollar amount to qualify as fixed asset?

    I know that each company has different point of views based on the company size. But I would appreciate anyone shares your practice and also advise why it makes sense to your company.
     
    Augu, Jul 25, 2011
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  2. Augu

    M Zaid

    Joined:
    Jul 26, 2011
    Messages:
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    Karachi
    A suggesion

    Dear Friend,
    you must halve the amount fixed for your fixed asset as your business is not so large and your firm should consider an entire transaction one thing and treating a batch of chairs your capital expense is not a right thing to do .:)
     
    M Zaid, Jul 26, 2011
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  3. Augu

    ladyrider

    Joined:
    Apr 17, 2011
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    Fixed Asset vs Expense

    Huh? I can't quite get the jist of what you are trying to say here M Zaid but as someone with over 20 years of concentrated FA experience your company sets the rules on the fixed asset vs expense cap amount and 2,000 isn't that far out of line. Usually smaller businesses do use 1000 or more PER ITEM as a guideline so with that said the chairs, even if you bought 100,000,000,000.00 worth of chairs if the cost per chair is less then the 1000.00 cap then they all would be expensed. No questions about that - all expenses and costs are attributed to a PER EACH cost not the whole thing. The chairs don't create a value for the business for "many years to come", I don't get that thought process at all. Look up the IRS guidelines for yourself - Fixed Assets VS Expense is always accounted for as a PER UNIT cost, period.

    The only exception to the dollar amount rule is software that is created for your company and cannot be used by any other company.
     
    ladyrider, Jul 27, 2011
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