Question

As mentioned in the opening part of the Robatelli's Pizzeria case, there are now 53 locations throughout the greater Pittsburgh area. Each one of those restaurant locations employs a full-time store manager and varying numbers of kitchen staff, servers, and delivery staff. The kitchen staff, servers, and delivery staff vary between full-time and part-time status. There tend to be high rates of turnover, especially among the part-time staff. Robatelli's pays its employees on a weekly basis each Friday for the week ending on the previous Saturday. Employee paychecks include withholdings for federal taxes as well as state and local taxes applicable for the employee's residence. Employees may live in one of three states and over 25 municipalities that are included in the greater Pittsburgh regional area. All payroll accounting is handled by Robatelli's at its home office.

Each restaurant must also maintain various fixed assets in order to operate.Following is a general list of fixed assets for each store:

 Furniture and store fixtures, including tables, chairs, and built-in items such as shelving, counters, and booths

 Kitchen equipments, such as refrigerators, stoves, ovens, and dishwashing machines

 Computers Note that the number of each of these fixed assets maintained at each location varies, depending upon the size of the store. Also note that each member of the delivery staff uses his or her personal automobile (rather than a company-owned car) for customer deliveries.

In addition, the home office maintains the following types of fixed assets:

 Land and the office building

 Office furniture and fixtures

 Computers and other office equipment

 Telephone systems

Finally, fixed assets maintained at the commissary include the following:

 Fixtures, such as built-in cabinets and shelving

 Kitchen equipment

 Computers

 Delivery trucks

All fixed asset accounting is handled by Robatelli's at its home office.

Required:

Describe how you believe an efficient and effective system of fixed assets accounting should be organized at Robatelli's. Be sure to include the following issues in your response:

a. How should the fixed assets accounting department maintain control over fixed assets in the various restaurant locations?

b. How should IT systems be used in the fixed assets process?

Answer 1

Asset accounting is a crucial task for firms. Therefore, all firms need to ensure that they carry out the process with utmost care. A single error in financial reports can lead to grave consequences.

The best way to go about this is by observing the following best practice

i) How should the fixed assets accounting department maintain control over fixed assets in the various restaurant locations?

Establish a threshold for capitalization

The first step towards maintaining error-free accounts involves setting a criterion to distinguish assets from expense items. Experts recommend recording items that are to be used for more than a year as assets. Doing so is handy as it also helps you differentiate between different accounts. Moreover, it also saves you from material misstatement in your financial reports.

Accountability and safe custody of assets

Safe custody of assets is the most important function in fixed asset management and can be accomplished by assigning a responsible person as a custodian. Establishing accountability of assets would result in increased levels of security and help reduce incidences of theft and misuse considerably, which would otherwise directly reduce bottom line and cash flows. Maintaining high standards of data integrity and custody of documents of ownership (e.g. land ownership) are good risk management measures.

Asset life cycle management with robust audit trail and history

Asset life-cycle management is the process of controlling, monitoring and accounting for assets throughout their life cycle. Tracking and recording every detail of every action ever made by any user from acquisition date through the date of disposal; while preserving the entire history of the asset.

Conduct physical asset verification

For the purpose of optimal management, asset managers should resort to periodical physical asset verifications to ensure existence of asset. Physical verification would call for reconciliation of the results with asset records in books. As part of the reconciliation, exceptions should be identified and reported for action if any.

Physical asset verification helps in identifying ghost assets. A ghost asset is one that is lost, stolen, or unusable, but is still recorded as an active fixed asset. Ghost assets cause low productivity because missing or unusable assets are not available when needed.

Choose the right depreciation method

Most companies fail to come up with the correct depreciation rate for their assets owing to unreliable methods of calculation. If a company continues to apply the incorrect rate, their data will be full of errors.

To avoid such scenarios, classify your assets according to their use, durability, and expected life. Then, determine the best possible depreciation method on the basis of the unique attributes of these distinct groups.

ii) How should IT systems be used in the fixed assets process?

Tagging physical assets

Practice of asset labeling provides goes a long way in effective and appropriate management and control of assets. Tracking assets is eased when fixed assets are tagged with unique identifiers as asset IDs. Bar codes are helpful incase assets are managed with fixed asset management software in place. Additionally, it also speeds up physical asset audit process by identifying assets on floor with assets on tag.

Many companies have fixed assets that they transport to various locations for off-site projects. However, all this movement might make it difficult to track the assets.

With the inability to track assets comes the consequence of facing huge losses from theft or misplacement.

In order to control such unfavorable activities, it is critical to tag all assets. Barcode and QR Code labels are a good option for easy check-ins and checkouts. These tags let you supervise asset whereabouts at various locations.

Automate your insights

These days, a huge number of companies resort to cloud based asset tracking software for tracking assets while also carrying out fixed asset accounting efficiently.

Such software offers a variety of features, such as tracking asset usage from the time of purchase to disposal. Real-time electronic records such as the one aforementioned help reduce human error. This lets you maintain an accurate database that you can then update from anywhere, and at any time.

CONCLUSION

In order to Following these Practices :

1. maximize the return on capital investment;

2. reduces risks and increase efficiency of asset management, saving costs and administrative time;

3. improve the accuracy of both financial and tax reporting and compliances

4. make effective decisions to improve overall organisational profitability and support growth.