Fixed Asset Capitalization Policies for Renovation, Overhaul, or Repairs: These are general policies applicable to all types of expenditures that state the dollar amount and future years' benefits derived from the renovation, repairs, or overhaul of the fixed asset as qualifying conditions for its capitalization.
Fixed Asset Depreciation Policies: The applicable policies include the fixed asset depreciation method. A chart containing the type of asset to be depreciated, its corresponding residual values, as well as estimated useful life is deemed as the best method of presentation for this information.
The policy should likewise incorporate the IRS procedure required for those instances when the method of depreciating tangible assets are changed. An application for change of accounting method should be submitted to the IRS to seek the commissioner's approval for the change in depreciation method.
Fixed Asset Disposition Policies: These policies state the persons tasked and authorized to determine the obsolescence and eligibility for retirement of a specific fixed asset. Disposition policies will likewise state the required documentation to support recommendations for retirement and their methods of disposal.
- The policies take into consideration that an auction sale of the retired fixed asset would be the best practice for fixed asset disposition; hence the submission of the mechanics pertaining to the proposed auction event shall be required for every occasion that it takes place. Mechanics will include the time, date, bidding notifications, criteria for the selection of the auction company, and the selection of a committee to oversee the entire auction process on behalf of the company.
- Donating the fixed assets and the requirements of the policies are similar to those required in an auction sale disposition but the supporting documents will be in accordance with the mechanics observed for donation procedures.
- Recycling of the fixed asset is also an option, for which policies require that cost-to-benefit issues should be addressed by submitting similar requirements to those required for auction events and donations to charitable institutions. The main objective should center on the benefits that will be derived from recycling vs. the benefits derived from auction sale or donation.
- In determining the standard for benefits, the company may hold the policy open, since the benefits of donation may prevail if it will contribute to the betterment of the society in terms of living conditions, health and education.
The informational sections contained in our downloadable example of corporate capitalization policy for fixed assets are merely suggestions for best practices. The example may serve as a template in terms of form and outline but the contents may be revised, replaced, or deleted according to what is applicable to the user’s business organization. The example should not be misconstrued as a legal, prescribed, or official form but should be modified according to the user's purpose.