Reminder
The revised SYSCOHADA has introduced the principle of the component approach, whereby companies are now required to break down the total cost of certain fixed assets into components that have different uses and provide economic benefits to the entity at their own pace. However, this rule does not apply to all fixed assets.
Fixed assets concerned
The breakdown of fixed assets is only authorized for buildings and other structures, aircraft, ships, trucks, coaches, buses, armored cash transport vehicles, and certain equipment and tools used by industrial, mining, agricultural, hospital and oil companies.
A component of a fixed asset :
- The separable part of a fixed asset, having a different use with a different useful life, having a significant cost that can be reliably measured; ;
- Main spare parts and safety parts inventory with a useful life exceeding 12 months and meeting the criteria of the general principles of fixed asset accounting; ;
- Expenditure on dismantling, removing and restoring a site, if the expenditure is a present obligation that can be reliably measured at the time the asset is placed in service;
- Expenditure on major overhauls or inspections to identify any defects in fixed assets, with or without replacement of parts; ;
- Safety or environmental expenditure that is a condition for obtaining future economic benefits and can be reliably estimated;
- The development - redevelopment expenditure meets the criteria of the general principles for recognition as a fixed asset.
Examples of fixed assets to be broken down
- Buildings: separate fixtures and fittings, elevator, trades (plumbing, electrical, etc.)
- Hospital equipment: a scanner can be broken down into main components and accessories, which are subject to subsequent replacement.
- Harbour gantry: structure, generator, engine...
- Petroleum construction...
Please note :
The breakdown does not result in a change in cost; it is a cost allocation. Identified components are accounted for separately in a sub-account of the main asset.
The impact of first-time adoption may not affect shareholders' equity. For assets acquired prior to SYSCOHADA Revised, the entity has the choice between maintaining the fixed assets as they are or restating them using the net book value reallocation method.
How do you break down a fixed asset?
Whether purchased or produced, the breakdown of fixed assets must be validated by supporting documents. When using technical data or applying breakdown percentages, attention must be paid to the risk of overvaluing components and ending up with a zero value for the «structure».
However, even if the breakdown was not carried out at the outset, it will be carried out as soon as the component is replaced or renewed. It should be pointed out that components with a replacement frequency of less than 12 months are systematically eliminated; the cost of such replacements being an expense for the year.
Who is responsible for breaking down fixed assets? It's not a matter for accountants.
From the moment an asset (tangible or intangible) enters an organization to the moment it leaves it, several departments are involved in the process of acquisition, commissioning, maintenance monitoring and disposal. In our opinion, the breakdown should involve accountants - financiers, purchasing, management control, technicians, maintenance, etc.
Clearly, each of these departments (or functions) has access to some of the information required to break down fixed assets in line with the criteria laid down in the Revised SYSCOHADA. In the decomposition process, the contribution of technology (rate of use, useful life) is as important as that of finance (significant cost, reliable valuation).
The success of a technical-accounting breakdown of fixed assets requires perfect collaboration between these organizational functions.
How do you get there?
- Call in a specialist
For the first decomposition, it's best to call in a professional who's an expert in fixed asset management. His role will be first and foremost to help the various managers speak the same language. The most frequent observation is that there is a lack of information exchange between these functions.
Then build consensus on the practical aspects of equipment breakdown. Every manager needs to have a clear understanding of why? and how? The expert also assists with the choice of depreciation rates for components, and the implementation of an optimal investment policy.
Contact us for your inventory
- Carry out regular physical inventories of fixed assets
The Acte Uniforme relatif au Droit Comptable et à l'Information Financière (AUDCIF) requires all companies to draw up an annual physical inventory of all their assets and liabilities, and to present a true and fair view in their financial statements.
Carrying out a complete annual inventory of fixed assets can be a cumbersome and costly exercise, especially if the approach adopted is not appropriate.
It is in fact possible to carry out rotating inventories of fixed assets (as for stocks) according to a cycle to be defined. This well-organized rotating inventory saves time during the complete inventory.
- An efficient information system
Without investing in complex and costly software, the company must have an information system that enables it to ‘capture’ the essential information in the asset's life cycle: commissioning, transfer and retirement.
Simple software programs are available, but you also need to have the information supports: entry slip, transfer slip, exit slip, etc. These documents can be digitized.
