Fixed assets, capitalisation & maintaining the fixed asset register

In short – no. Whilst capitalising an asset reduces your expenditure and in theory therefore increases your reserves carried forward,. When analysing your funds at the end of the year in the accounts we have to show where a fixed asset was funded from, and this will reduce the reserve to the same value as it would have been had the asset not been capitalised. This can be shown in the example below:

Price Bailey Academy Trust has fixed asset reserves brought forward of £5m and GAG reserves of £100k. It has spent £200k on replacing the heating system this year which was funded out of GAG reserves, it has currently not capitalised this and the cost is within its expenditure of £10m. The funds working therefore looks as follows:

If it chooses to capitalise the heating system, expenditure will reduce by £200k. The fixed assets are now worth £5.2m (which are not included in your GAG reserves) and a transfer needs to go into restricted fixed assets from where the asset was funded, which in this case is GAG. Thus the GAG carried forward remains the same.

Your register should have 2 sections to it – a summary providing totals for each asset category and a detailed breakdown of those totals showing the split each asset. Your summary will be an exact replica of what will appear in the accounts and should look something like this:

What the asset categories are in the columns will depend on your unique circumstances and how you choose to categorise assets, the 10 rows are essential and should be on all registers. Assets are split between their original cost and the depreciation charged to them, the cost less depreciation then results in what their value in the accounts known as Net Book Value (NBV) is.

The cost and depreciation brought forward figures during the year must never change and must equal the carry forward values from the preceding year. In the instance of the example above for the year ended 31 August 2023 the figures in the cost brought forward and depreciation brought forward will be exact matches of the cost carry forward and depreciation carry forwards in the 31 August 2022 signed accounts. Any assets bought in the year will be included as additions. Should any asset be disposed of in the year, either because it is sold or more likely it is no longer in use and scrapped, the original cost of the asset is included as a negative entry in disposals to bring the cost carried forward back down. The same is true of the corresponding depreciation that had been charged on that asset up until the date of disposal, this goes in the eliminated on disposals line to bring the net book value of the asset disposed down to zero. The difference between the net book value at the time of disposal and what it was sold for will be recorded as a profit or loss on disposal as a revenue item (sometimes referred to as the P&L).

The detailed breakdown of assets will show each of those 10 row headings for each and every individual asset, as there are likely to be many assets it is normally sensible to show what were the row headings in the summary as columns and show each individual asset on its own row. A simple example of what this might look like is below:

As above when an asset is disposed of, the cost and depreciation are reduced to nil using the disposals and depreciation on disposals columns. It is vital when you dispose of an asset on the register that you do not delete the line as this will amend the brought forward figures and they will no longer agree to the prior year accounts. Only once we are into the financial year after the year of disposal should the asset no longer appear on the register.

The above example shows one column for the depreciation charge for the year, if you are processing it monthly you may find it easier to have 12 columns to show the depreciation each month.

Depreciation should be charged in line with the useful economic life of assets as stated in your financial regulations. For example, you may decide to depreciate computer equipment over 5 years in which case 20% depreciation will be charged each year.

At the start of your new financial year assets that you had bought in the previous year are no longer additions, assets you disposed of are no longer there and your carry forward figures become brought forward figures. You will need to roll forward your register into the new financial year. This can be simply done by copying your carry forward figures into the brought forward column, clearing out the additions, disposals and depreciation charge in the year figures and removing the disposed assets which now have nil cost. It is important when doing this to start with the depreciation carried forward. The reason for this is the depreciation charge figures will often be driven by a formula and if you change the cost figures first this could amend the depreciation charge and then the carry forward figures you copy into the brought forward column may not be right. You can simply check whether your roll forward has been done correctly by checking the brought forward totals against the signed accounts. It is important however to remember that your August year end audit will be happening after the new financial year starts and adjustments to fixed assets could arise as a result, therefore it may be sensible to hold off preparing the roll forward until the audit is complete.

It is important to note that you may in the previous year have fully depreciated an asset such that its Net Book Value has now reduced to nil, this does not mean that you should now remove it from your register, if you still have it it should stay on the register showing its cost and depreciation figures and will only be shown as disposed when you no longer have the asset.  You should review your register regularly for old assets you may not have anymore. For example, you might have some computers that are years old that you have scrapped.