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1. Look around your workplace or training organisation and identify the different types of physical assets used to operate the business. List ten of the non-current physical assets you have identified. 

2. How can developing and maintaining an asset register help an organisation and its management team? Give at least two reasons.

3. What details are recorded in an asset register? List at least eight details you would need to know about the asset. 

4. How do you decide which method of depreciation to apply to each physical asset?

Types of Physical Assets in Work Organizations

In a work organization as well as in a training institute generally the following physical assets can be identified:

  1.  
  2.  
  • Plant and equipment.
  1.  
  2. Motor vehicles.
  3.  
  •  
  •  
  1. Air conditioner.
  2. Water purifier (Haggerty al. 2017).

Two primary reasons to maintain asset registers are:

  1. Asset register helps an organisation to keep track of its assets and thus, maintenance of assets becomes easier.
  2. To keep record of assets such as asset type, date of acquisition etc. for future reference (Gardiner, 2014).   

Following are the eight details recorded in an asset register:

  1. Asset name.
  2. Asset type.
  • Asset specification.
  1. Date of acquisition of asset.
  2. Identification code of the asset.
  3. Method of depreciation for the asset.
  • Useful life of the asset.
  • Insurance details on the asset (Barney, 2017). 

In order to decide the method of depreciation applicable to each type of physical asset the most important factor to be considered is the extent of use of such asset in the business. The useful life of the asset is also another important consideration to be kept in mind while determining the method of depreciation for a particular type of physical asset (Campbell, Jardine and McGlynn, 2016).  

The business objectives determines the extent of use of physical assets thus, the management of such asset is very much dependant on business objectives. However, the general care and protection of physical assets remain more or less similar irrespective of business objectives.   

Fix on fail:

This is the maintenance program where the physical assets are used extensively without much maintenance. The physical assets are only repaired and fixed when the assets failed to perform the required services (Kahn and Lemmon, 2016).

In comprehensive maintenance program an organization makes a comprehensive maintenance plan for physical assets to enhance the life of these assets. Regular maintenance and repairing work is conducted in physical asset under the program. Thus, the amount of expenditures is relatively higher under the program. However, the expected lives of physical assets increased significantly as a result of such maintenance program.

Preventive maintenance program:

In preventive program extensive amount of expenditures is incurred on maintenance of physical assets with the objective of preventing the break-down of physical assets (Gârleanu and Pedersen, 2015).       

The list to be followed to establish a maintenance program:

  1. The type of physical asset and its specification.
  2. The type of work for which the asset is to be used.
  • The number of hours that the asset will be in use each day.
  1. The replacement available for the asset in the organization in case of any break-down.
  2. The importance of the asset for the day to day operations in an organization.
  3. The cost of the asset and its useful life (Fung al. 2016). 

Asset

 Weekly

Monthly

Annual

Computers

Cleaning and checking the computer and attached cables.

Cleaning the hard disk and if possible taking back up. Formatting after taking back up.

Compulsory maintenance and if necessary installation of new parts as required.

Building

Cleaning and checking the fire system within the building.

Electric wiring checking and repairing.   

Annual repairing, painting and renovation as required.

Equipment

Oiling and cleaning the equipment.

Full check-up of the equipment.

 Annual reprinting and maintenance as per the maintenance contract.

The two factors to be considered while acquiring an asset as far as its environmental impact is concerned are as following:  

  1. Whether the use of the asset would contribute to the pollution in the environment.
  2. The noise and heat to be generated due to the use of the asset in the working place.    

The business objectives have to be evaluated at the beginning. After the evaluation of the objectives of the business a clear evaluation of the physical asset shall be conducted to determine how the asset will contribute to the fulfilment of the business objectives. The financial implications of acquiring the asset is to be determined by evaluating the proposal of acquiring the asset. Investment appraisal techniques such as Net present value analysis would help the business to determine whether the asset would be beneficial for the business or not (Campbell, Jardine and McGlynn, 2016).     

Importance of Maintaining an Asset Register

The financial statements of a business shows the financial performance and position of the business as on a particular period. The ability of a business to acquire an asset at present or in the future can be very much evaluated from the financial position of the business. The amount of retained earnings and the liquidity position of a business will very much reflect its ability to acquire an asset or assets as on a particular date. Also the solvency position of an organization helps such organization to take loan from banks to acquire assets for business. Thus, both current as well as future ability of a business to acquire a particular can be evaluated from the assessment of its financial position. In addition the ability of an organization to make optimum use of its assets in the future is another factor that will contribute to the decision of an organization to acquire an asset (Ma, Zhou and Sheng, 2014).  

In order to assess the impact of a physical asset on the performance of an organization the following shall be evaluated:

  1. The quantum of production.
  2. The quality of production.
  • Production costs (Shah, McMann and Borthwick, 2017).

In order to assess the effectiveness of a physical asset on the performance of an organization the following shall be evaluated:

  1. How the production processes have changed.
  2. The improvement in the goods and services.
  • Use of other resources in production of goods and proving services.

Long-term performance:

In order to assess the impact of physical asset on the long-term performance of an organization the following shall be evaluated:

  1. The profit from business operations.
  2. The quality of goods and services whether improved or not.
  • Customer satisfaction level subsequent to the use of long-term performance (Green al. 2016).

 Answer 13:

Once the analysis of performance monitor is complete the business will be able to take a final decision as to whether the asset is to be acquired or not. If the performance monitoring indicates that the acquisition of asset would benefit the business then the asset should be purchased otherwise the asset should not be purchased (Trappey et. al. 2015).    

Three techniques to be used to establish and implement regular reporting practices on the assets performance are as following:

  1. The efficiency with which the asset is performing.
  2. The quality and quantity of goods and services subsequent to the use of the asset.
  • The financial performance of the entity as a result of using the asset (Toepke al. 2018). 

Three methods to identify problems with physical assets are:

  1. Efficiency method
  2. Performance method.
  • Testing method. 

The meetings and discussion forums can be used to discuss the condition and deficiencies os assets with employee and staffs. It is important that the meeting and discussion allow the staff and employees to put forward their point of views freely (McCabe and Donahue, Raymond Corp, 2017).   

Following three types of specialist assistance may be taken to maintain, repair and deal with performance issues of physical assets:

  1. The expert assistance.
  2. The quality appraisal assistance of the asset.
  • Regular maintenance assistance of the asset.    

Three examples of operational requirements and design features provided are as following:

Operational requirements:

  1. The refrigerator has anti-mist function.
  2. It has a minimum capacity of 1,000 litre.  
  • The temperature of the refrigerator can be controlled +1 degree to +10 degree Celsius (Coffman al. 2017).  

Design specification:

  1. The refrigerator has double glazed door.
  2. It has both black as well as black and silver exterior.
  • The refrigerator has casters with adjustable shelves.

 Answer 19:

Details Recorded in an Asset Register

Design, operational requirements and budgets are the three types of requirements and parameters that guide the type of information to be disclosed in an equipment specification.

Design: Design provides significant details such as the colour and exterior of an equipment.

Operational requirements: Operational specification provides capacity of an equipment as well as it technical parameters of operations.

Budget: Budget generally provides the cost and price of an equipment in the market (Bishop and Cardozo, Landis+ Gyr Innovations Inc, 2016).     

While writing specifications about a physical asset generally the following two guidelines must be followed:

  1. The operational requirements must be given very clearly to ensure that the prospective buyers are aware of complete operational and technical specifications about a physical asset to buy such asset.
  2. Ensuring disclosure of all important qualitative characteristics of the physical asset in the specification to attract buyers. 

In order to estimate the cost of acquiring an asset correctly the information about a physical asset can generally be found on the official website of the company producing such assets. Apart from that the commodity markets and manufacturing units can be visited to get important information before taking a final decision.   

In order to communicate with the supplier any one of the following methods can be used:

  1. Directly approaching the suppliers by using telecommunication of personal visits to the supplier premises.
  2. Tenders can be invited from suppliers.
  • Confirmations can be requested from the suppliers for different quantity of orders. 

The existing physical assets and their performances must be tested at first. If the performance of existing physical assets are of not up-to the mark then obviously the business should consider replacing the existing assets. The replacement decision also depends on the financial viability of acquiring new asset. If acquisition of new asset is not expected to benefit the business financially then the decision of acquisition of new asset and replacement of the existing assert should be postponed.  

Since the responsibility of operations in a new asset is on the shoulder of the workers and employees thus, it is important to discuss the potential acquisition of new asset with the team that would operate in the new asset. Without discussion the team and the staffs might feel disgruntled and thus, they might not give their 100% efforts with the new asset. Hence, it is important to make the employees and team feel part of the decision by discussing the potential acquisition of new asset and its impact on the business operations.        

Purchasing a physical asset has number of benefits and few drawbacks as well. Let’s discuss one specific benefit and one specific drawback of purchasing a physical asset.

The benefit of purchasing a physical asset is that the ownership of the asset belongs to the business and the business can make any use of such asset. The drawback is that the annual repairing and maintenance expenditures have to be incurred to keep the asset efficient and operational.     

Methods of Depreciation for Physical Assets

An operational lease agreement is an agreement between a lessor, generally the owner of an asset, and the lessee, generally a business, that gives the lessee the right to use an asset for its business and other operations as per the agreement. It is generally for a short period of time and the asset reverts back to the lessor after the end of the operating lease period.    

Let’s calculate the net cash outflow under three different option available to use the vehicle to evaluate which option is most beneficial to make use of the vehicle.

Cash outflow in case acquisition from Bills Bobbin Toyota

 Particulars  

 Amount ($)  

 Amount ($)  

 Purchase costs  

   48,990.00

 Depreciation per year (48990 x 15%)

     7,348.50

 Annual expenditures  

 Annual servicing

     2,000.00

 Registration, insurance and other expenses  

     1,800.00

     3,800.00

 Annual tax savings  

 Depreciation

     7,348.50

 Annual expenditures  

     3,800.00

   11,148.50

 Assuming rate of taxation of 30%  

 Tax shield (11148.50 x 30%)

     3,344.55

 Total tax shield din 5 year (3344.55 x 5)

   16,722.75

 Total cash outflow  

 Purchase cost  

   48,990.00

 annual expenditures for 5 years (3800 x 5)

   19,000.00

   67,990.00

 Less: Total tax shield  

   16,722.75

 Net outflow of cash over the 5 years

   51,267.25

Cash outflow in case acquisition from Redwood Motors  

 Particulars  

 Amount ($)  

 Amount ($)  

 Purchase costs  

   47,890.00

 Depreciation per year (48990 x 15%)

     7,183.50

 Annual expenditures  

 Annual servicing

     2,000.00

 Registration, insurance and other expenses  

     1,800.00

     3,800.00

 Annual tax savings  

 Depreciation

     7,183.50

 Annual expenditures  

     3,800.00

   10,983.50

 Assuming rate of taxation of 30%  

 Tax shield (11148.50 x 30%)

     3,295.05

 Total tax shield din 5 year (3344.55 x 5)

   16,475.25

 Total cash outflow  

 Purchase cost  

   47,890.00

 annual expenditures for 5 years (3800 x 5)

   19,000.00

   66,890.00

 Less: Total tax shield  

   16,475.25

 Net outflow of cash over the 5 years

   50,414.75

Cash outflow in case taken on lease  

 Particulars  

 Amount ($)  

 Amount ($)  

 Weekly lease  

         355.00

 Annual lease (355 x 52)

   18,460.00

 total lease payment in 5 years (18460 x 5)

   92,300.00

 Less: Tax shield (92300 x 30%)

   27,690.00

 Net outflow of cash under lease method  

   64,610.00

Decision:

Since net cash outflow is lowest if the Toyota Tarago is purchased from Redwood Motors hence, the vehicle should be acquired from Redwood Motors.

The two socialists that should be consulted at the time of consulting about financing an asset are the following:

  1. Financial analysts and
  2. Investment banker.

The financial analysts will help the acquirer by providing him with necessary information such as the monthly and annual instalments to be paid for such number of years to acquire the asset over a period of time.

The investment banker would help the acquirer by providing him with cost benefit analysis of acquiring such asset on finance.  

Because the financial agreement contains all relevant terms and conditions that are to be followed by both the acquirer as well as the financer. In case of any dispute in the future the document can be used as reference for settlement of such dispute. Thus, the financial agreement should be documented and safely stored by both the acquirer and financer.

Establish a maintenance and repair program:

The selected area is Business administration.

The three current assets in the selected area are inventory of raw materials, inventory of finished goods and accounts receivable of the business.

Three non-current assets of the business administration are equipment, computer and printer.    

Development of physical asset register:

Name of the asset

Asset type

Date of acquisition

Cost of acquisition

Useful life of the asset

Method of depreciation

Annual maintenance date

Land.   

Non-current physical asset

01/01/2016

$200,000

Perpetual

No depreciation

After every six months  

Building

01/05/2016

$350,000

10 years

SLM

Annually

Plant and equipment.

15/06/2016

$125,000

7 years

Diminishing

After every three months

Machinery.

17/007/2016

$112,500

5 years

Diminishing

After every three months

Motor vehicles.

18/08/2016

$47,890

8 years

SLM

After every three months

Furniture.

01/09/2016

$28,000

10 years

SLM

Annually

Computers.

01/10/2016

$17,500

5 years

Diminishing

Monthly

Printer.

15/10/2016

$7,500

5 years

Diminishing

Monthly

Air conditioner.

17/11/2016

$4,500

6 years

Diminishing

After every six months

Water purifier.

18/01/2016

$1,250

3 years

SLM

Monthly

Task 1.3: Identification of maintenance and repairing requirements:

Computers:

The computers are performing efficiently however, it is important to up-to-date the software and anti-virus within computers to keep the computers safe and in effective condition. The current condition of computers are good and these are performing efficiently for the business operations. The computers are continuously monitored and in case of any issue the services of IT experts are used to ensure these are in top working condition.

The building is in operational condition and continuously monitored to ensure that in case any issues are identified then immediate actions can be taken to ensure that the building is in perfect condition again. Annual repairing and renovation are carried out to ensure the building is in operational condition.

Maintenance Programs for Physical Assets

The equipment is in top condition as it is taken care of regularly without any failure. Necessary repairing and maintenance work are carried out without missing any deadline to ensure the useful life of the equipment can be enhanced.

Establishing a maintenance and repairing program:

Currently the organization is using preventive maintenance program by taking all necessary steps to ensure that the physical assets are in perfect condition. As a result the possibility of asset break-down is significantly less. The organization does have a standard policy to maintain the physical assets carefully. However, the organization should change its maintenance program to comprehensive maintenance program as prevention program is costing significantly high amount money to the organization. Thus, the organization should follow the follow comprehensive maintenance program in the following lines.

The computers should be maintained by taking annual maintenance contacts. The Building should be maintained annually and there is no need to conduct regular checking on building. However, the equipment should be tested on regular basis to ensure the same is in perfect working condition. Necessary internal controls should be instituted to safeguard these assets from accidents and other incidents.  

Internal auditors should conduct testing on internal controls and securities to ensure these are working efficiently throughout the organization to keep the physical assets safe from any disaster and other issues.

Task 1.5: Asset maintenance calendar:

Selected assets

Date wise maintenance

Computers

Taking back up on last working day of each week

Up-to-dating the software at the end of each month  

Maintenance of computers at the end of every 6 months

Annual maintenance of computers as per AMC

Building

Checking the fire system on regular basis within the  building

The electrical wiring shall be cheeked after very three months  

Annual maintenance and repairing work shall be conducted

Necessary renovation work shall be carried out as and when necessary.

Equipment

Oiling and cleaning regularly

Necessary repairing and maintenance as and when necessary.

Replacing the equipment in case there is any issue that risks the lives of the employees.

 In a work organization as well as in a training institute generally the following physical assets can be identified:

  1.  
  2.  
  • Plant and equipment.
  1.  
  2. Motor vehicles.
  3.  
  •  
  •  
  1. Air conditioner.
  2. Water purifier (Haggerty al. 2017). 

Two primary reasons to maintain asset registers are:

  1. Asset register helps an organisation to keep track of its assets and thus, maintenance of assets becomes easier.
  2. To keep record of assets such as asset type, date of acquisition etc. for future reference (Gardiner, 2014).   

Following are the eight details recorded in an asset register:

  1. Asset name.
  2. Asset type.
  • Asset specification.
  1. Date of acquisition of asset.
  2. Identification code of the asset.
  3. Method of depreciation for the asset.
  • Useful life of the asset.
  • Insurance details on the asset (Barney, 2017). 

In order to decide the method of depreciation applicable to each type of physical asset the most important factor to be considered is the extent of use of such asset in the business. The useful life of the asset is also another important consideration to be kept in mind while determining the method of depreciation for a particular type of physical asset (Campbell, Jardine and McGlynn, 2016).  

The business objectives determines the extent of use of physical assets thus, the management of such asset is very much dependant on business objectives. However, the general care and protection of physical assets remain more or less similar irrespective of business objectives.  

Fix on fail:

This is the maintenance program where the physical assets are used extensively without much maintenance. The physical assets are only repaired and fixed when the assets failed to perform the required services (Kahn and Lemmon, 2016).

Factors to Consider When Acquiring an Asset

Comprehensive:

In comprehensive maintenance program an organization makes a comprehensive maintenance plan for physical assets to enhance the life of these assets. Regular maintenance and repairing work is conducted in physical asset under the program. Thus, the amount of expenditures is relatively higher under the program. However, the expected lives of physical assets increased significantly as a result of such maintenance program.

Preventive maintenance program:

In preventive program extensive amount of expenditures is incurred on maintenance of physical assets with the objective of preventing the break-down of physical assets (Gârleanu and Pedersen, 2015).    

The list to be followed to establish a maintenance program:

  1. The type of physical asset and its specification.
  2. The type of work for which the asset is to be used.
  • The number of hours that the asset will be in use each day.
  1. The replacement available for the asset in the organization in case of any break-down.
  2. The importance of the asset for the day to day operations in an organization.
  3. The cost of the asset and its useful life (Fung al. 2016). 

Asset

 Weekly

Monthly

Annual

Computers

Cleaning and checking the computer and attached cables.

Cleaning the hard disk and if possible taking back up. Formatting after taking back up.

Compulsory maintenance and if necessary installation of new parts as required.

Building

Cleaning and checking the fire system within the building.

Electric wiring checking and repairing.   

Annual repairing, painting and renovation as required.

Equipment

Oiling and cleaning the equipment.

Full check-up of the equipment.

 Annual reprinting and maintenance as per the maintenance contract.

The two factors to be considered while acquiring an asset as far as its environmental impact is concerned are as following:  

  1. Whether the use of the asset would contribute to the pollution in the environment.
  2. The noise and heat to be generated due to the use of the asset in the working place.    

The business objectives have to be evaluated at the beginning. After the evaluation of the objectives of the business a clear evaluation of the physical asset shall be conducted to determine how the asset will contribute to the fulfilment of the business objectives. The financial implications of acquiring the asset is to be determined by evaluating the proposal of acquiring the asset. Investment appraisal techniques such as Net present value analysis would help the business to determine whether the asset would be beneficial for the business or not (Campbell, Jardine and McGlynn, 2016).        

The financial statements of a business shows the financial performance and position of the business as on a particular period. The ability of a business to acquire an asset at present or in the future can be very much evaluated from the financial position of the business. The amount of retained earnings and the liquidity position of a business will very much reflect its ability to acquire an asset or assets as on a particular date. Also the solvency position of an organization helps such organization to take loan from banks to acquire assets for business. Thus, both current as well as future ability of a business to acquire a particular can be evaluated from the assessment of its financial position. In addition the ability of an organization to make optimum use of its assets in the future is another factor that will contribute to the decision of an organization to acquire an asset (Ma, Zhou and Sheng, 2014). 

Impact:

In order to assess the impact of a physical asset on the performance of an organization the following shall be evaluated:

  1. The quantum of production.
  2. The quality of production.
  • Production costs (Shah, McMann and Borthwick, 2017).

Assessing the Impact of Physical Assets

Effectiveness:

In order to assess the effectiveness of a physical asset on the performance of an organization the following shall be evaluated:

  1. How the production processes have changed.
  2. The improvement in the goods and services.
  • Use of other resources in production of goods and proving services.

Long-term performance:

In order to assess the impact of physical asset on the long-term performance of an organization the following shall be evaluated:

  1. The profit from business operations.
  2. The quality of goods and services whether improved or not.
  • Customer satisfaction level subsequent to the use of long-term performance (Green al. 2016). 

Once the analysis of performance monitor is complete the business will be able to take a final decision as to whether the asset is to be acquired or not. If the performance monitoring indicates that the acquisition of asset would benefit the business then the asset should be purchased otherwise the asset should not be purchased (Trappey et. al. 2015).  

Three techniques to be used to establish and implement regular reporting practices on the assets performance are as following:

  1. The efficiency with which the asset is performing.
  2. The quality and quantity of goods and services subsequent to the use of the asset.
  • The financial performance of the entity as a result of using the asset (Toepke al. 2018).  

Three methods to identify problems with physical assets are:

  1. Efficiency method
  2. Performance method.
  • Testing method. 

The meetings and discussion forums can be used to discuss the condition and deficiencies os assets with employee and staffs. It is important that the meeting and discussion allow the staff and employees to put forward their point of views freely (McCabe and Donahue, Raymond Corp, 2017).   

Following three types of specialist assistance may be taken to maintain, repair and deal with performance issues of physical assets:

  1. The expert assistance.
  2. The quality appraisal assistance of the asset.
  • Regular maintenance assistance of the asset.  

Three examples of operational requirements and design features provided are as following:

Operational requirements:

  1. The refrigerator has anti-mist function.
  2. It has a minimum capacity of 1,000 litre.  
  • The temperature of the refrigerator can be controlled +1 degree to +10 degree Celsius (Coffman al. 2017).  

Design specification:

  1. The refrigerator has double glazed door.
  2. It has both black as well as black and silver exterior.
  • The refrigerator has casters with adjustable shelves. 

Design, operational requirements and budgets are the three types of requirements and parameters that guide the type of information to be disclosed in an equipment specification.

Design: Design provides significant details such as the colour and exterior of an equipment.

Operational requirements: Operational specification provides capacity of an equipment as well as it technical parameters of operations.

Budget: Budget generally provides the cost and price of an equipment in the market (Bishop and Cardozo, Landis+ Gyr Innovations Inc, 2016).     

While writing specifications about a physical asset generally the following two guidelines must be followed:

  1. The operational requirements must be given very clearly to ensure that the prospective buyers are aware of complete operational and technical specifications about a physical asset to buy such asset.
  2. Ensuring disclosure of all important qualitative characteristics of the physical asset in the specification to attract buyers.   

In order to estimate the cost of acquiring an asset correctly the information about a physical asset can generally be found on the official website of the company producing such assets. Apart from that the commodity markets and manufacturing units can be visited to get important information before taking a final decision.   

In order to communicate with the supplier any one of the following methods can be used:

  1. Directly approaching the suppliers by using telecommunication of personal visits to the supplier premises.
  2. Tenders can be invited from suppliers.
  • Confirmations can be requested from the suppliers for different quantity of orders. 

The existing physical assets and their performances must be tested at first. If the performance of existing physical assets are of not up-to the mark then obviously the business should consider replacing the existing assets. The replacement decision also depends on the financial viability of acquiring new asset. If acquisition of new asset is not expected to benefit the business financially then the decision of acquisition of new asset and replacement of the existing assert should be postponed. 

Techniques for Establishing and Implementing Asset Performance Reporting

Since the responsibility of operations in a new asset is on the shoulder of the workers and employees thus, it is important to discuss the potential acquisition of new asset with the team that would operate in the new asset. Without discussion the team and the staffs might feel disgruntled and thus, they might not give their 100% efforts with the new asset. Hence, it is important to make the employees and team feel part of the decision by discussing the potential acquisition of new asset and its impact on the business operations.        

Purchasing a physical asset has number of benefits and few drawbacks as well. Let’s discuss one specific benefit and one specific drawback of purchasing a physical asset.

The benefit of purchasing a physical asset is that the ownership of the asset belongs to the business and the business can make any use of such asset. The drawback is that the annual repairing and maintenance expenditures have to be incurred to keep the asset efficient and operational. 

An operational lease agreement is an agreement between a lessor, generally the owner of an asset, and the lessee, generally a business, that gives the lessee the right to use an asset for its business and other operations as per the agreement. It is generally for a short period of time and the asset reverts back to the lessor after the end of the operating lease period.  

Let’s calculate the net cash outflow under three different option available to use the vehicle to evaluate which option is most beneficial to make use of the vehicle.

Cash outflow in case acquisition from Bills Bobbin Toyota

 Particulars  

 Amount ($)  

 Amount ($)  

 Purchase costs  

   48,990.00

 Depreciation per year (48990 x 15%)

     7,348.50

 Annual expenditures  

 Annual servicing

     2,000.00

 Registration, insurance and other expenses  

     1,800.00

     3,800.00

 Annual tax savings  

 Depreciation

     7,348.50

 Annual expenditures  

     3,800.00

   11,148.50

 Assuming rate of taxation of 30%  

 Tax shield (11148.50 x 30%)

     3,344.55

 Total tax shield din 5 year (3344.55 x 5)

   16,722.75

 Total cash outflow  

 Purchase cost  

   48,990.00

 annual expenditures for 5 years (3800 x 5)

   19,000.00

   67,990.00

 Less: Total tax shield  

   16,722.75

 Net outflow of cash over the 5 years

   51,267.25

Cash outflow in case acquisition from Redwood Motors  

 Particulars  

 Amount ($)  

 Amount ($)  

 Purchase costs  

   47,890.00

 Depreciation per year (48990 x 15%)

     7,183.50

 Annual expenditures  

 Annual servicing

     2,000.00

 Registration, insurance and other expenses  

     1,800.00

     3,800.00

 Annual tax savings  

 Depreciation

     7,183.50

 Annual expenditures  

     3,800.00

   10,983.50

 Assuming rate of taxation of 30%  

 Tax shield (11148.50 x 30%)

     3,295.05

 Total tax shield din 5 year (3344.55 x 5)

   16,475.25

 Total cash outflow  

 Purchase cost  

   47,890.00

 annual expenditures for 5 years (3800 x 5)

   19,000.00

   66,890.00

 Less: Total tax shield  

   16,475.25

 Net outflow of cash over the 5 years

   50,414.75

Cash outflow in case taken on lease  

 Particulars  

 Amount ($)  

 Amount ($)  

 Weekly lease  

         355.00

 Annual lease (355 x 52)

   18,460.00

 total lease payment in 5 years (18460 x 5)

   92,300.00

 Less: Tax shield (92300 x 30%)

   27,690.00

 Net outflow of cash under lease method  

   64,610.00

Decision:

Since net cash outflow is lowest if the Toyota Tarago is purchased from Redwood Motors hence, the vehicle should be acquired from Redwood Motors.   

The two socialists that should be consulted at the time of consulting about financing an asset are the following:

  1. Financial analysts and
  2. Investment banker.

The financial analysts will help the acquirer by providing him with necessary information such as the monthly and annual instalments to be paid for such number of years to acquire the asset over a period of time.

The investment banker would help the acquirer by providing him with cost benefit analysis of acquiring such asset on finance.  

Because the financial agreement contains all relevant terms and conditions that are to be followed by both the acquirer as well as the financer. In case of any dispute in the future the document can be used as reference for settlement of such dispute. Thus, the financial agreement should be documented and safely stored by both the acquirer and financer.

Identifying Problems with Physical Assets

Establish a maintenance and repair program:

Q1:

The selected area is Business administration.

Q2:

The three current assets in the selected area are inventory of raw materials, inventory of finished goods and accounts receivable of the business.

Three non-current assets of the business administration are equipment, computer and printer.    

Task 1.2:

Development of physical asset register:

Name of the asset

Asset type

Date of acquisition

Cost of acquisition

Useful life of the asset

Method of depreciation

Annual maintenance date

Land.   

Non-current physical asset

01/01/2016

$200,000

Perpetual

No depreciation

After every six months  

Building

01/05/2016

$350,000

10 years

SLM

Annually

Plant and equipment.

15/06/2016

$125,000

7 years

Diminishing

After every three months

Machinery.

17/007/2016

$112,500

5 years

Diminishing

After every three months

Motor vehicles.

18/08/2016

$47,890

8 years

SLM

After every three months

Furniture.

01/09/2016

$28,000

10 years

SLM

Annually

Computers.

01/10/2016

$17,500

5 years

Diminishing

Monthly

Printer.

15/10/2016

$7,500

5 years

Diminishing

Monthly

Air conditioner.

17/11/2016

$4,500

6 years

Diminishing

After every six months

Water purifier.

18/01/2016

$1,250

3 years

SLM

Monthly

Task 1.3: Identification of maintenance and repairing requirements:

Computers:

The computers are performing efficiently however, it is important to up-to-date the software and anti-virus within computers to keep the computers safe and in effective condition. The current condition of computers are good and these are performing efficiently for the business operations. The computers are continuously monitored and in case of any issue the services of IT experts are used to ensure these are in top working condition.

Building:

The building is in operational condition and continuously monitored to ensure that in case any issues are identified then immediate actions can be taken to ensure that the building is in perfect condition again. Annual repairing and renovation are carried out to ensure the building is in operational condition.

Equipment:

The equipment is in top condition as it is taken care of regularly without any failure. Necessary repairing and maintenance work are carried out without missing any deadline to ensure the useful life of the equipment can be enhanced.

Establishing a maintenance and repairing program:

Currently the organization is using preventive maintenance program by taking all necessary steps to ensure that the physical assets are in perfect condition. As a result the possibility of asset break-down is significantly less. The organization does have a standard policy to maintain the physical assets carefully. However, the organization should change its maintenance program to comprehensive maintenance program as prevention program is costing significantly high amount money to the organization. Thus, the organization should follow the follow comprehensive maintenance program in the following lines.

The computers should be maintained by taking annual maintenance contacts. The Building should be maintained annually and there is no need to conduct regular checking on building. However, the equipment should be tested on regular basis to ensure the same is in perfect working condition. Necessary internal controls should be instituted to safeguard these assets from accidents and other incidents.  

Internal auditors should conduct testing on internal controls and securities to ensure these are working efficiently throughout the organization to keep the physical assets safe from any disaster and other issues.

Task 1.5: Asset maintenance calendar:

Selected assets

Date wise maintenance

Computers

Taking back up on last working day of each week

Up-to-dating the software at the end of each month  

Maintenance of computers at the end of every 6 months

Annual maintenance of computers as per AMC

Building

Checking the fire system on regular basis within the  building

The electrical wiring shall be cheeked after very three months  

Annual maintenance and repairing work shall be conducted

Necessary renovation work shall be carried out as and when necessary.

Equipment

Oiling and cleaning regularly

Necessary repairing and maintenance as and when necessary.

Replacing the equipment in case there is any issue that risks the lives of the employees.

Cite This Work

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My Assignment Help. (2020). Physical Asset Management: Importance, Maintenance, And Evaluation Essay. (70 Characters). Retrieved from https://myassignmenthelp.com/free-samples/sitxfin005-manage-physical-assets/maintenance-program.html.

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