CAPITAL ASSETS THAT YOU WANT 195
DECISIONMAKING VALUES
An excellent way to establish the actual or useful value of your fixed assets is to examine
the depreciation schedule and fixed asset register. These show the original cost, current
book cost and the age of the assets. The written-down (depreciated) value is often way
out of line with current or replacement values. You need to conduct a realistic appraisal to
decide what is reasonable.
1 Market values. During your management review of the business, you will base
decisions on market values. What is the underlying value of plant or machinery?
Would it be better to sell it and use the proceeds elsewhere? Do you have
competitive advantage because you have already written off the cost?
2 Insurance value. For your operational decisions, you will also have to decide
whether to insure for current or replacement values.
‘Better to wear out than to rust out.’
BISHOP CUMBERLAND
Capital assets that you want
It hardly needs to be said that you need to draw up a list of capital outlays that are
required by your strategic and operational plans. For each category of assets (plant,
machinery, office, etc.) you should show the expected date of acquisition, total acquisi-
tion costs and a depreciation schedule. Some thoughts follow.
WHAT DOES IT COST?
For accounting purposes, the acquisition cost – booked value – of fixed assets is usually
taken to include all outlays incurred in bringing them into use. For example, for a compu-
ter, booked-value might include the cost of the hardware itself – plus operating software,
shipping, installation fees, cabling and so on.
This is one situation where profits for the current period are inflated –
consumables are put on to the balance sheet rather than in the profit and
loss account. The downside is that it reduces profits in future periods.
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