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Online Fixed Assets Management Software Development - The Principles

Fixed assets are those permanent business assets which enable the trader to carry on the business. They are used in connection with production or manufacture and are held as agents of production with the object of earning revenue but not for resale in the ordinary course of business e.g. plant and machinery, land and buildings, motor vehicles etc. Our discussion on the principles of fixed asset management software development will focus on asset valuation and asset disposal. The starting point is to create an asset register containing information on every single item of fixed asset of the organization in accordance with a classification structure which ensures that every asset belongs to a class and subclass. To this end, you provide the following forms and corresponding tables in the database-
Asset class- To create a unique asset class name and asset class code.
Asset subclass- To create a unique asset subclass name and asset subclass code.
Asset register- To create a unique asset name and asset code under a particular asset class and subclass. Information on asset class and subclass names and codes will be pulled by the asset register form from the asset class and asset subclass tables. These together with the date of purchase, the asset name, the asset code, and some other information will be submitted with the asset register form.

Let us take a look at a hypothetical case to exemplify the asset classification structure. Suppose a company has the following types of vehicle- cars, trucks, and buses and you want to register each one in the asset register. First, we create a class name and class code for them. We will assign motor vehicles as their class name and assign 01 as their class code. We then submit the name and the code into the asset class table. Second, we create a subclass name and subclass code for each type of motor vehicle. We will assign cars, trucks, and buses as their subclass names and assign 01001 subclass code to cars, 01002 subclass code to trucks and 01003 subclass code to buses. We then submit them into the subclass table. Third, we create a unique asset name and asset code for each specific vehicle. The asset code will be derived from its class and subclass. Under subclass cars if, for instance, the company has a Toyota Camry, a Peugeot 406, and a Honda Accord, we will assign these as asset names and assign 01001001 as the Toyota Camry asset code, 01001002 as the Peugeot 406 asset code, and 01001003 as the Honda Accord asset code. We then submit them into the asset register. For another asset class like plant and machinery, the class code will be 02 and the rest of the asset classification follows the same pattern.

For this classification structure, you implement it with table relationship so that you can easily track assets according to their classes and subclasses. A relationship is an association between one table and one or more tables using keys- primary keys and foreign keys. For more information on application of relationship in the development of software, read my article on "The Development of Blog and Database Table Relationship". By the time the asset register is ready you are in a position to put structures for the purpose of valuation of assets in place.

Fixed assets valuation- A company's balance sheet must present the value of its assets at the end of an operating year. Fixed assets valuation is generally based on the cost of the fixed asset less accumulated depreciation to date. Depreciation is the reduction in value of an asset as a result of usage. As an asset loses value, we reduce the book valuation in line with our estimate of the loss. Depreciation is thus the part of the cost of the fixed asset consumed during its period of use by the firm. Therefore, it is the cost for services consumed in the same way as costs for such items as wages, rent, lighting etc. Depreciation is therefore an expense and there are 8 different methods of calculating it. These are straight-line or equal installment method, reducing balance method, revaluation method, renewals method, depletion method, annuity method, sinking fund method, and insurance policy method. I will expatiate on the straight-line and reducing-balance methods.

The straight-line method allows an equal amount to be charged as depreciation for each year of expected use of the asset. The computation is done using the traditional method or modern method. The traditional method makes use of the following formula-

Depreciation= (cost price - scrap value)/expected life span

where expected life span is the estimated useful life of the asset in years and scrap value is the expected value of the asset at the end of its life span.

The modern method calculates annual depreciation as follows-

Depreciation=cost price x annual depreciation rate

The reducing balance method writes off a fixed percentage of the diminishing balance of the asset yearly to compute depreciation. Depreciation is calculated as follows-

Depreciation = current balance x annual depreciation rate

where current balance= previous year balance - previous year depreciation

However, at the end of the first year, since there is no previous year balance and previous year depreciation, depreciation is calculated as cost price x annual depreciation rate and at the end of the second year, the cost price is used as the previous year balance and the previous year depreciation is the first year depreciation. For subsequent years, the original depreciation formula holds.

To carry out a year's depreciation run, the depreciation date is submitted via a depreciation run form, then the script-
Retrieves the cost price and the annual depreciation rate for each asset from the depreciation table and computes depreciation based on the method used.
Updates the depreciation field of the asset register for each asset.
Calculates the cumulative depreciation for each asset to date in the asset register.
Computes the Net Book Value (NBV) of each asset in the asset register by subtracting the cumulative depreciation from the cost price.
Reduces the life span of each asset by one by subtracting 1 from current value.

The value of each asset given by the latest figure is known at the end of the exercise. The depreciation script is run at the end of the operating year by an authorized person after his successful username and password authentication. After that date, no further depreciation calculation for that year will be allowed and it is ensured by the script through the checking for the current depreciation run date in the asset register. If it exists, it disallows the running of the program but if does not exist, the depreciation is calculated and the asset register is updated accordingly. Every asset has its own depreciation annual rate as submitted through a depreciation rate form. The rate used depends on the accounting policy used by the organization for a given operating year and it is in percentage e.g. 2% for leasehold land and buildings, 25% for motor vehicles etc.

Fixed assets disposal- Sometimes, an asset purchased may be sold due to old age or just to replace it with new one. When this happens, the asset register needs to be updated to reflect such disposal. Any asset disposed off needs to be removed from the asset register and transferred to an asset disposal table. The table will contain the asset's disposal date, the original purchase value (cost price), the disposal value, the net book value and any other information like the cumulative depreciation of the asset. On selecting the asset name from the asset register list pulled from the asset register table by the asset disposal form, all the above information will be retrieved and submitted by the asset disposal form. The record is inserted into the asset disposal table and the corresponding record in the asset register is either deactivated or deleted.

From the asset register and asset disposal tables, information on the fixed assets to be presented in the balance sheet and the profit or loss from disposal of asset to be presented in the profit and loss account are retrieved by your script. The software will not meet the needs of users until the kind of information wanted can be retrieved when needed. Reports should be presented by the software for decision-making purpose. There should therefore be a report section presenting report on-
All asset classes and asset subclasses
All assets belonging to a particular class or subclass.
All disposed assets
All the assets in the asset register showing information on their net book value, accumulated depreciation as at a particular date etc.

There should also be a search interface where information on any asset can be requested for and produced immediately after database search. Furthermore, continuous back up of the asset register should be made and provision should be made for asset register restoration in case of eventuality. The restoration script will simply restore all the records from the back up table. Other aspects of fixed assets management software like asset verification and asset revaluation done periodically should also be built into the software and a history table should be available to keep track of any single operation carried out by any user on the asset register for security purposes. If you are using a database like Microsoft SQL Server that supports triggers, then the task becomes easier.

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Olumide Bola holds a bachelors degree of the University of Ibadan, Nigeria and is currently pursuing chartered membership of the Computer Professionals Registration Council of Nigeria (CPN). He is also a member of Nigeria Computer Society (NCS). He has trained scores of people for well over a decade in programming and non-programming courses. He is currently a Software Developer and the Managing Director/CEO of Victolay Technologies Limited. Official web site: [http://www.victolaytechnologies.com]http://www.victolaytechnologies.com.

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