Question

In: Finance

Discuss critically the challenges for a small business of calculating fixed assets depreciation.

Discuss critically the challenges for a small business of calculating fixed assets depreciation.

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Expert Solution

Fixed assets are critical in the growth of a business. All the fixed assets are to be tracked and depreciated periodically.

Depreciation is to be calculated based on the type of assets and the rules and regulations applicable to it. The tax depreciation rules and calculations also will be different for different assets. So the companies have to create a complete inventory and have to streamline the fixed asset lifecycle. That is a big challenge. The finance staff may have to depend upon other departments such as the IT department or sometimes other regional offices for this. Creating complete inventory is a tuff task for small business firms. Implementing fixed asset tracking software is expensive and is not affordable for them.

The tracking and depreciating fixed assets are challenging because the finance staff will be busy in preparing financial records. Thus it is time consuming and expensive. In small business organizations, there will be shortage of staff.

Other challenges arise when some assets that are no longer in use and are not properly disposed of in accounting books. Then for such assets, the companies continue to overpay property taxes and insurance costs. So, the treatment of fixed assets and depreciation are important because any mistakes in the amount of depreciation will lead to overpayment of insurance premiums other costs associated with fixed assets.


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