15 February 2007

Weekly Dynamic: Matching Fixed Asset Costs In Multiple Books

As I work on year end tax returns for the company, one of the things we look at every year is our tax vs. book depreciation. One thing we find every year is that there are a few assets where the cost is different between tax and book. In our case, they should always be the same. It's getting better each year but we've still got a small handful this year.
This happens when we adjust the cost of an asset after the fact for additional costs that come in later. These are things like freight, tax, installation, etc. Sometimes these bills arrive 60 days after the asset is on the books. We tend to get the corporate book right and forget to make the same changes on the tax book. Also, if it's a new category for us, the Federal book relationship might not be setup (life, depreciation type, etc.). In that case, we get an error when setting up the asset but if you don't go back and fix it, you end up with a corporate book and no tax book at all.
Consequently, one of our processes at year end is to export the tax and corporate books to Excel via a Smartlists and then compare the two. We then make any adjustments to reconcile the two books. Since it's always federal that's out in our case (we're really conscientious about the corporate book) I can do this process after the year is closed and just rerun the depreciation on the federal book for any adjustments.
For this year, we've quit doing adjustments and are setting up second assets with the same asset number but a different suffix. It looks like a bunch of little assets when you glance at the FA ledger but it's simple to explain, easier to trace to source documents  and our auditors have been happy with it.
So there's really two tips that come out of this:
1) Compare your cost basis for your various books on some kind of regular basis.
2) Avoid adjusting asset costs whenever you can and use a suffix or master asset ID to keep all the pieces of an asset together.