Balance Sheets Will Grow With New Proposal

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Balance SheetsIn his story “New Accounting Proposal on Leasing Portends Big Changes” from New York Times writer Floyd Norris, he details a possible change in accounting that would have major implications on many companies. This modification would alter how assets and liabilities are reported with a potential significant impact on balance sheets.

In addition to making balance sheets larger, the proposed rule would also change income statements for many companies. Currently, a company that leased a piece of machinery for $1,000 a year for five years would show a $1,000 expense each year.

Under the new proposal, that company would show a larger expense in early years and a smaller one in later years. That is because the accounting would be similar to what would be shown if the company had borrowed money to buy the asset, paying off the loan in equal payments over five years. In early years, the interest expense would be higher than in later ones.

A significant change from the initial proposal is that most real estate leases would be accounted for differently.

This new proposal has been passed in preliminary votes, but the details remain very controversial. Some dissenters want real estate to be an exception and others think this will result in overly complex financial reporting. What do you think? Let us know in the comments.

Read the story here:

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Foreign Currency Conversion of Fixed Assets

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Companies primarily enter fixed assets in functional currency, which is the currency used for its principal business. So a U.S. based company would enter most of their assets with U.S. dollars. If they own subsidiaries in other countries than those assets can be entered with a different reporting currency. A currency conversion module would then be necessary to report in either functional or reporting currency.

Bassets eDepreciation includes an optional foreign currency module that allows the user to easily generate depreciation reports in different currencies.  The Currency Conversion module enables each individual asset to be stored in the native currency of that country. This flexibility permits reporting of the monthly depreciation expense in appropriate dollar amounts as needed.

Here is a screen shot of a sample exchange rate:

Foreign Currency 2

This form allows for an unlimited list of defined currencies. For each currency, you can then select the effective date, exchange rate and rate type. This combination of variables covers many different reporting scenarios based on the choice of rate type.

As an example, if the base currency were US Dollars, an asset with a currency type of EUR (Euro) would have its numbers multiplied by the correct currency conversion rate.  On the other hand, if an asset was stored with US Dollars and the report was generated for EUR, the dollars would be multiplied by the inverse rate (1/rate). The conversion rate for the current reporting period can be entered at any time prior to the report being generated.

An integrated foreign currency module greatly reduces the errors that can occur when using a spreadsheet or manually calculating conversions. All standard reports can be run in either functional or reporting currency to display cost, depreciation calculations and net book value using the selected currency.

Questions or comments on this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Depreciation Expense of Property, Plant & Equipment

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Depreciation Expense of PropertyIn a recent opinion piece by Michael Evans on CFO World, he gives a very clear description of how companies can improve depreciation of corporate property:

A common problem in corporate real estate is when a property comes to the end of its useful life and needs to be sold and there is the dawning realization that the net book value of the property is well in excess of the potential sales proceeds. Bad news – an unwelcome hit to the profit and loss (P&L) account and substantially lower cash receipts than may have been expected.

In the story, he details several points that are often overlooked:

  • Owned properties are recorded at historic costs
  • Property is usually depreciated using a straight line method
  • Cost increases with capital improvements
  • Replaced assets should be written off
  • Assign the correct residual value
  • Employ the proper useful life

The combination of overinflated cost bases and excessive useful lives and residual values that bear little relation to the market mean that all too often the depreciation of property assets is understated and net book values are overstated in property accounts. So when you’re looking to sell that corporate property and you’re facing a huge loss – don’t blame the corporate real estate team, don’t blame the property market – blame the depreciation policy, stupid.

Read Full Article Here:

Questions or comments on this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Bassets eDepreciation – Data Import

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Basset eDepreciation - Data ImportThe Bassets eDepreciation Data Import Module will easily import your existing fixed asset data. All selected fixed asset records will be imported from either Excel, ASCII text files or other fixed asset software programs.  A great feature is our on-screen preview which displays the existing fixed asset data in a simple spreadsheet like grid to assist in the field mapping. Bassets also allows for customized mapping of each field. A user defined import map allows each field in the source fixed asset data to be directed to the corresponding Bassets field and you can preview user selected sample fixed asset data for each field. No need to worry about mistakes because Bassets will verify the accuracy of all depreciation methods, first year conventions and recovery periods based upon the property type and acquisition date and then check each fixed asset record against the defined field lengths. When you process the import Bassets calculates fixed asset depreciation to tie out with existing total accumulated depreciation. It imports only the required depreciation schedules and will automatically build drop down or pick lists for any Master List fields.

Watch this video to see the details:

Questions or comments on this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Excel Spreadsheet Errors Can Be Very Costly

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Excel-errorIn a recent article published on CNNMoney, Steven Gandel, a writer for Fourtune examines some severe errors in Excel spreadsheets: The popular Microsoft program has been implicated in the financial crisis, Europe’s growth problems, the U.S.’s weak economic recovery, and pretty much everything else.

Prominent financial blogger James Kwak calls Excel “one of the greatest, most powerful, most important software applications of all time.” But perhaps we ask too much of the program, or perhaps of our ability to cut and paste. In the past few years, Excel has been implicated in some of the biggest blunders on Wall Street and in finance in general.

In the article, he then details some mistakes which had significant implications on the spreadsheet owner’s organization:

  • Two Harvard professor’s incorrectly predict economic growth
  • Risk officers at JPMorgan underestimate potential investment risk
  • MF Global bets on Europe with outdated information
  • Barclays misses nearly 200 hidden rows of bad assets which then became part of the deal for Lehman Brothers
  • Utah’s office of education vastly underestimates public school enrollment
  • Fannie Mae profitability was grossly overstated
  • Native Americans miscalculate the value of NYC

So while Excel is an excellent tool for performing financial calculations, it is not without problems. It is very easy to make a mistake in a formula, miss hidden rows or incorrectly copy & paste some key information. We are not recommending that you stop using Excel, but as you can see from this article, you should proceed with caution.

Read Full Article Here:

Questions or comments on this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.