Fixed assets

I OBJECTIVE


To establish a standard method of accounting for the Hotel’s fixed assets and the responsibility for their care and security.

The Hotel Controller is responsible for maintaining a Fixed Asset Register to record all the fixed assets of the Hotel in accordance with generally accepted accounting principles.

The Hotel Controller is also responsible for ensuring that the Hotel has adequate security procedure for the physical protection of the Hotel’s fixed assets and reporting any deficiencies to the General Manager in writing



II PROCEDURES


Definition of Fixed Assets

Basically there are two categories of Fixed Assets employed by the Hotel.

(a) Moveable or relatively small in size, where both physical control and recording are necessary for control purpose e.g. table, chairs, calculators, etc.
(b) Immobile or relatively large in size, where proper recording is adequate for control purpose e.g. land, buildings, air-conditioning plant, air-conditioning ducting, carpets, sanitary equipment etc.
The actual classification of each Fixed Assets into category (a) or (b) above so that proper control can be exercised is the responsibility of the Controller of the hotel.

Fixed Assets must be further sub-divided according to their nature, furniture, data processing equipment, plant and machinery, etc.



Recording of Fixed Assets Purchase

When receiving fixed asset, the General Accountant should prepare a Fixed Assets Receiving from (FAR) that lists the name of fixed asset, asset's category, serial number, asset's code, unit price of asset, quantity of asset, date of acquirement.

FAR should be signed by Store Keeper, General Accountant, receiving department.

Assets must be recorded by unit, not by the whole purchased

Based on FAR form, the General Accountant will input the Fixed Assets Register File on the system to keep track on all of the assets. The Fixed Assets Register File should include all of the information in FAR and the additional information as date of putting in use, the location of asset (on which department), depreciation rate, accumulated depreciation value, net book value.



Labeling or Tagging of Fixed Assets for Control Purposes

Wherever possible, all fixed assets classified as category (a) above should be labeled with a pre-numbered sticker.

The Accounting staff assigned to maintain the Fixed Assets Register should also be responsible to label the fixed assets with its assigned serial number to enable easy reference and identification.

The fixed assets in guest room and in banqueting under category (a) can be controlled by using the alternative procedure detailed in sections 10 and 11 below



User Department’s Responsibility for Fixed Assets

The user department’s head is held responsible for the care and condition of the fixed assets employed by his department. However, the department head will not be responsible for damage due to normal wear and tear or circumstances beyond his control.

Then any damage to a fixed asset is noted by the user department’s head he should contact the Engineering Department to see if repair is possible. If, in the opinion of the Engineering Department, the item is irreparable or the cost of repair would be too high, the department head can request the purchase of a replacement. This requisition would be dealt with under the normal capital expenditure control procedures.

Whenever there is any physical movement of a fixed asset, from one location to another in the same department, or a transfer between departments, the department heads concerned must notify the Accounts Department so that the record can be updated. This does not apply to fixed assets that are oftentimes temporary moved such as banquet chairs and tables etc.



Physical Control of Fixed Assets

For the proper physical control of the Hotel’s fixed assets, security procedures must be established to prevent their unauthorized removal from the Hotel premises. The Hotel’s Security Department must ensure that all goods and packages leaving the hotel through the staff or service entrances have a properly approved gate-pass. A copy of the gate-pass will be passed to the Accounts Department by the Security Department for recording and action where necessary. This procedure must also be implemented for fixed assets that are removed from the Hotel for outside repair.

All fixed assets classified under category (a) in section 1 above must be counted in October each year. Before counting, a detailed list of Fixed Assets held by each department will be prepared according to the Fixed Asset Register. The Financial Controller shall issue inventory instructions as guide to the staff who will do the account. The counting will be conducted by staff of the Accounts Department and representatives from the user department. The external auditors may wish to observe the counting



Adjustment of Physical Discrepancies in Fixed Assets

No adjustment maybe made to the fixed asset records when a physical discrepancy is discovered unless the written approval of the General Manager has been obtained.



Disposal of Fixed Assets

The disposal of any fixed should be approved by the General Manager before actual disposal. The proceeds of sale must be banked and recorded properly in the appropriate general ledger accounts.

Adequate information should be given to update the Fixed Assets Register.

Should any Fixed Asset bearing the Hotel’s Logo need to be disposed of, it should not be sold on the second-hand market. Instead it must be made unusable before bearing scrapped.

Wherever possible, competitive bids are to be obtained when selling obsolete or surplus fixed assets. If the Net Book Value (cost less Accumulated Depreciation) of the surplus/obsolete fixed asset exceeds US$5,000, the prior approval of the owners is required.

The sales/disposal of a fixed asset will fall into one of two categories as follows:

Fully-depreciated Fixed Assets

Proceeds from the sale of fully depreciated fixed assets are to be recorded as Miscellaneous Income after Gross Operating Profit as the proceeds came from extraordinary transaction. The entry to remove the fixed asset from the fixed asset records is illustrated below:

Debit: Accumulated Depreciation

Credit: Fixed Assets



Fixed Assets that are not Fully-Depreciated

The following entry illustrates the accounting treatment for the sale of an asset costing $5,000 with a written down value of $2,000, for $500:



Accounts Debit Credit

Cash 500

Accumulated Depreciation 3,000

Loss on disposal of Fixed Asset 1,500

Fixed Asset 5,000



Write-off Fixed Assets

Any Fixed Asset that is damaged and unusable must be written of in the financial books and disposed of properly. The writing-off must be authorized by the General Manager and Controller. If the value of the item was significant it should be drawn to the attention of the owners



Depreciation

Fixed Asset will be depreciated base on the policy of the company as follow:

Main building 25 years, Fixture that attached to main building 25 years, Equipment 5 to 10 years on a straight line basis

Pre-opening expenses will be written off over 3 years on a straight line basis. Expenses under this category include those spent preparatory to the opening of a project i.e. land use rights but excluding those spent for fixed assets. Moreover, this includes administrative expenses, recruitment training expenses, market surveys incurred prior to actual opening



Control of Fixed Assets in Guest Rooms-Alternative Procedure

It has proved to be impractical in certain Hotels to label the Fixed Assets in Guest Rooms and to identify the specific location of each unit. In such cases the following alternative procedure may be adopted:

(a) The record of each item’s total quantity is kept by a Stock Card system or equivalent excels system, which is similar to that used in recording inventory. Purchases, disposals, write-offs and transfer will be recorded in the receipt or issue column accordingly. The quantity of each item on hand at any time can be obtained from the Stock Card. Alternatively, excel spread sheet can be used for this purpose.
(b) Physical counts should be conducted twice yearly, using th43 floor control sheet, to record the number of each item in each Guest Room and to provide a floor total. The floor total is transferred to a floor summary sheet to procedure the totals for all Fixed Assets in Guest Rooms. The total located in Guest Rooms plus the physical balance in the Housekeeping storeroom is then compared with the Stock Card balance.
(c) Any discrepancy found should be investigated and any unexplained differences must be reported to the General Manager who will determine the appropriate action.
(d) The related cost for all movements i.e. disposal, write-off, transfer and physical adjustments should be on a First-in First-out basis.


Control of Banquet Furniture

Banquet Furniture should be controlled by the same approach as Fixed Assets in Guest Rooms. Recording is done in a Stock Card system or equivalent thereof and a physical count is conducted twice yearly to compare the physical total per item with the balances in the perpetual record







Tools & Material Procedure



Like fixed assets, when receiving Tools & Materials, the Storekeeper will fill in the Receiving Report the name of Tools & Materials, the code of Tools & Materials, quantities, unit price, total amounts, date of acquirement.



Upon receiving, the Tools & Material will be input in stores like other inventory. Storekeeper also input the quantities, amounts and the code of tools & material in master file of the system for controlling. (for other step, refer to receiving system).



When issuing for use, the amounts of Tools & Material is transferred to the Differed Expense Accounts, but the Tools & Material themselves continue to be controlled by the master file for the quantities, the location, codes.



Any damages, loses of the using Tools & Material must be note on the Breakage Report (BR). The BR must be approval by head department and transferred to accounting department for record expenses and reduce the Differed Expenses Account. Please refer to Breakage policies



Every month, the Inventory Accountant, Storekeeper, the using department will take a physical count for Tools & Materials. Any loses and damages that not in Breakage Report will be compensated by the responsible person.



Tools and Materials will be amortized base on company policy.