Asset Management and Budgetary Control

One of the major financial functions is the management of fixed assets. Asset management module primarily maintains asset register, which provides information about asset related transactions. Asset Management thus helps in keeping track of fixed assets, handling fixed asset depreciation for fiscal reporting and revaluation of asset. Budgetary control (BC) module is another important finance module which helps in planning and comparison of actual results with budgeted amount and quantity. This module helps business units to calculate business target, budget release as well as provide extensive analytic tools for budget monitoring.

Asset Management - Some of the important functionalities are:

  1. Investment and disposal method.
  2. Users’ defined depreciation method.
  3. Periodic revaluation of fixed assets.
  4. Business and insurance information.

This module is linked to general ledger to post depreciation result as well as to accounts payable and accounts receivable for buying and disposing assets. A few important master data parameters for Asset Management are:

  1. Defining of a schedule of chart of account which is needed for linking to general ledger.
  2. Depreciation method.
  3. Remainder value or percentage.

  • Investment and disposal method: This procedure is applicable when a new asset is acquired by the organization. While payment is made through accounts payable for asset acquisition, an investment transaction is generated, and the result is posted to general ledger. The asset is registered in asset management and is linked to a depreciation method. The asset is then ready for periodic depreciation and revaluation. Similarly, when an asset is sold / discarded, a disposal transaction is created in this module which generates a sales invoice in accounts receivable and post relevant transactions in general ledger.

  • Users’ defined depreciation method: This functionality provides a flexible way of maintaining depreciation cost. The system allows a depreciation method which determines how the system calculate depreciation such as by a fixed amount, by a percentage of purchase price/ book value or an amount on the basis of number of years in operation. The system also allows accounting for remainder value. The depreciation method may be applicable globally for the entire organization or specific for one or more groups of assets.

  • Periodic revaluation of fixed asset: This functionality enables periodic revaluation, which is a positive correction of book value of the asset, to account for market price changes. Revaluation of asset is linked to some user defined indices which are integrated in the system. Revaluation amount is, normally, calculated by the system during fiscal year closing and result is posted as year end transaction in general ledger.

  • Business and Insurance information: Under this functionality, additional information regarding fixed assets which are non-financial in nature, are stored in a users’ defined manner. Information is stored after classifying assets under various groups and sub groups. Details of insurance policies are also maintained and are linked to fixed assets.

  • Budgetary Control Module: This functionality enables registering, handling and monitoring of budget amount by ledger accounts. This functionality also helps in preparing performance budget for reference units (such as fuel consumption for vehicles), in addition to price based financial budget. Budget amounts and quantities are planned over the year and broken down into period values. It is also possible to set up a flexible budget by distinguishing between fixed and variable budget.

Steps for preparation of budget

  1. Setting up of master data such as defining budget codes, periods of budget.
  2. Defining reference units (by amount or quantity) and budget method such as bottom up or top down approach.
  3. Generation of budget distribution data and maintaining budget amounts over the year/ period.
  4. Printing budget amount and trial balance.

Encumbrance budgetary control: This functionality, which enables recording of pre expenditure in the form of commitment, is important particularly for government/ public sector, where budgetary control is a statutory requirement. The system creates encumbrances from a requisition, purchase order or a work order, where related amount is needed to be paid in near future. The committed amount is automatically blocked and is not available for other transactions. When the payment is finally made, the encumbrance is relieved, after the account is debited with paid amount.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.