Modern construction machinery and equipment are major investments for any business. These machines and equipment provide the ability to quickly and efficiently complete critical tasks related to the construction process. As such, it’s important to manage the fixed assets related to the machines and equipment in a responsible and efficient manner.
The following topics provide information on the management of fixed assets related to construction machinery and related equipment:
Overview
The term “fixed asset” can refer to any item that represents a long-term investment in the company’s business. These items are often useful for more than one accounting period and represent a significant investment for the company.
In the context of construction machinery and related equipment, a fixed asset is any item that the business has determined a long-term need for and plans to use it for a minimum of a year or more. This typically includes items such as bulldozers, backhoes, cranes, and other equipment used in construction activities.
Inventory Management
The management of construction machinery and related equipment starts with an accurate inventory. The business must have a record of all items in the fixed asset register, including the item itself, vendor information, dates of purchase, and useful life data. This information should then be used to create a list that is used for ongoing tracking and maintenance purposes.
Operating Costs
Once the inventory is complete, the business must also consider that owning and operating the machinery and equipment will typically require additional costs. If the item is leased, then these costs are likely to be included in the lease agreement. For items owned, the business must factor in costs related to fuel, lubrication, repairs, and other expenses related to its operation and maintenance.
Depreciation
The purchase or lease of construction machinery and related equipment represents a significant capital expenditure that should be considered when calculating the company’s financial results. To maximize the financial benefits of owning the asset, the business must accurately calculate the depreciation of the asset.
In most cases, the depreciation of a fixed asset related to construction machinery and associated equipment is estimated using the straight-line method. This method assumes a uniform rate of depreciation spread over the useful life of the item.
Tax Considerations
The depreciation of fixed assets related to construction machinery and associated equipment can generate considerable tax liabilities for the business. The tax laws differ from one jurisdiction to the next and it’s important for a business to be aware of the rules related taxes when depreciating their fixed assets.
In some cases, businesses may be eligible to take advantage of certain tax benefits related to the depreciation of the item. An accountant should be consulted to determine eligibility for any tax benefits and to ensure proper tax reporting for all depreciation activity.
Disposal
At some point, a fixed asset related to construction machinery or associated equipment will no longer be of use to the business and must be disposed of. It’s important to ensure that all the necessary steps are taken in advance to properly dispose of the item without incurring additional liabilities or penalties.
To ensure a proper disposal, businesses should begin by accurately tracking all movement of the fixed asset. This includes recording the date that the item was removed from the company’s ownership, the method disposed of (e.g., sale or donation), the buyer’s or recipient’s information, and the amount paid. This should then be followed up with a letter to the buyer or recipient that outlines the warranties, conditions, and other liabilities related to the transaction.
Conclusion
Managing the fixed assets related to construction machinery and related equipment is an important responsibility for any business. The proper management of these items will help the company keep track of their investments and ensure that the financial statements remain accurate. This, in turn, can help the company maximize their financial benefits from owning and operating these items.
