Fixed Assets in ERP

Every manufacturing business relies on long-lived physical assets — machines that cut and shape metal, buildings that house the shop floor, vehicles that deliver finished goods, computers that run the office. These are fixed assets, and they represent a significant portion of a manufacturing company's total investment. Tracking them properly is not optional; it is a regulatory requirement under the Companies Act, 2013 and a practical necessity for financial accuracy, tax compliance, and operational planning. This chapter introduces the concepts behind fixed asset management and explains why an ERP system is the right place to manage them.

What You Will Learn

• What qualifies as a fixed asset and how it differs from a regular expense
• The types of fixed assets commonly found in manufacturing businesses
• The difference between capital expenditure and revenue expenditure
• What an asset register is and why it matters
• How book value, salvage value, and accumulated depreciation relate to each other
• Why tracking fixed assets in ERP benefits small and medium manufacturers

Prerequisites

• Familiarity with the Udyamo ERP Lite dashboard (covered in Chapter 4)
• Basic understanding of accounting fundamentals (covered in Chapter 31)

What Qualifies as a Fixed Asset

Not every purchase your business makes is a fixed asset. For an item to qualify, it must meet all of the following criteria:

1. Tangible. The asset has a physical form. You can see it and touch it. A CNC milling machine qualifies; a software licence does not fall into the tangible fixed asset category (it may qualify as an intangible asset, which is outside the scope of Udyamo ERP Lite's current asset module).

2. Held for long-term use. The asset is intended to be used in the business for more than one accounting period — typically more than 12 months. A lathe that will serve the shop floor for 15 years qualifies; a box of cutting tool inserts that will be consumed within weeks does not.

3. Not held for resale. The asset is used in the business, not bought with the intention of selling it to customers. The delivery truck that carries your finished goods is a fixed asset; the finished goods themselves are inventory, not fixed assets.

4. Above the capitalization threshold. The asset's cost must exceed a minimum value defined by your organization's accounting policy. Many Indian SMBs set a capitalization threshold of Rs 5,000 or Rs 10,000. A wall clock costing Rs 800 might technically last for years, but it is usually expensed immediately rather than tracked as a fixed asset. Your auditor can help you set an appropriate threshold.

Tip: When in doubt about whether a purchase qualifies as a fixed asset, ask two questions: Will it last more than a year? Is the amount material enough to warrant tracking? If both answers are yes, capitalize it.

Types of Fixed Assets in Manufacturing

Manufacturing businesses typically hold a wider range of fixed assets than trading or service companies. The table below lists the most common categories:

Each of these categories has a different useful life and depreciation rate, as prescribed by Schedule II of the Companies Act, 2013. We will cover these rates in detail in the next chapter.

Capital Expenditure vs. Revenue Expenditure

Understanding this distinction is critical for correct accounting:

Capital expenditure (CapEx) is money spent to acquire or improve a fixed asset. The cost is not immediately expensed; instead, it is recorded as an asset on the balance sheet and gradually expensed through depreciation over the asset's useful life. Examples include purchasing a new CNC machine, constructing a factory extension, or overhauling an engine to extend its operational life.

Revenue expenditure (RevEx) is money spent on the day-to-day operation and maintenance of the business. It is expensed entirely in the period it is incurred. Examples include electricity bills, routine machine servicing, lubricant purchases, and consumable tool replacements.

The distinction matters because capital expenditure affects your balance sheet (assets increase) and is spread over multiple years, while revenue expenditure affects your Profit & Loss statement immediately (expenses increase, profit decreases). Misclassifying a capital expense as revenue — or vice versa — distorts both your profit figures and your asset register.

Warning: A common error in small factories is to expense large machinery purchases directly instead of capitalizing them. This understates assets on the balance sheet and overstates expenses in the current year, which can create problems during audit and when applying for bank loans where asset backing matters.

The Asset Register

An asset register is a comprehensive record of every fixed asset owned by the business. For each asset, the register tracks:

• Asset name and unique code
• Category (Plant & Machinery, Vehicle, etc.)
• Date of purchase and original cost
• Location (which factory, which floor, which department)
• Serial number and identification details
• Depreciation method, rate, and accumulated depreciation to date
• Current book value
• Warranty and insurance information
• Current status (active, under maintenance, disposed, scrapped)

In a manual system, this is maintained in a spreadsheet or a physical register. In Udyamo ERP Lite, the Asset model serves as your digital asset register. Every field listed above maps directly to an attribute on the Asset record, and the system calculates book value automatically as depreciation entries are recorded.

Book Value, Salvage Value, and Accumulated Depreciation

Three financial measures define the current state of any fixed asset:

Purchase cost (original cost). The total amount paid to acquire the asset and bring it to a usable state. This includes the purchase price, freight, installation charges, and any non-refundable taxes. For a CNC machine costing Rs 8,00,000 with Rs 50,000 in installation charges, the total purchase cost recorded is Rs 8,50,000.

Accumulated depreciation. The total amount of depreciation charged against the asset from the date of purchase to the current date. If the machine above has been depreciated by Rs 85,000 each year for three years, the accumulated depreciation is Rs 2,55,000.

Book value (written-down value). The current value of the asset on the books, calculated as:

Book Value = Purchase Cost - Accumulated Depreciation

For the CNC machine: Rs 8,50,000 - Rs 2,55,000 = Rs 5,95,000.

Salvage value (scrap value). The estimated residual value of the asset at the end of its useful life — what you expect to recover by selling or scrapping it. Under the Straight Line Method, salvage value directly affects the annual depreciation amount. Under the Written Down Value method, the asset theoretically never reaches zero, but the salvage value serves as a practical floor.

Why Track Fixed Assets in ERP

Small manufacturers sometimes question whether they need formal asset tracking. After all, the factory owner can see the machines on the shop floor. The benefits, however, go well beyond visibility:

Accurate depreciation and tax compliance. Depreciation is a deductible expense under the Income Tax Act, 1961. Accurate asset records ensure you claim the correct depreciation, neither more nor less. Over-claiming triggers scrutiny during assessment; under-claiming means you pay more tax than necessary.

Financial statement accuracy. Your balance sheet must reflect the true value of fixed assets. Lenders, investors, and auditors rely on these figures. A manufacturing company applying for a term loan will be asked for its fixed asset schedule — the ERP-generated report serves this purpose directly.

Insurance management. You need to know the replacement cost and current book value of assets to maintain adequate insurance coverage. Udyamo ERP Lite tracks insurance provider, policy details, and expiry dates for each asset, ensuring nothing falls through the cracks.

Maintenance scheduling. Sending a machine for preventive maintenance at the right time avoids costly breakdowns. The asset module tracks maintenance status, helping you plan downtime without disrupting production schedules.

Audit readiness. Statutory auditors require a complete fixed asset schedule every year. When your asset register lives in the ERP, generating this schedule is a matter of running a report, not scrambling through files and spreadsheets in March.

Disposal and scrap tracking. When an old machine is sold or scrapped, the ERP records the event, calculates profit or loss on disposal, and removes the asset from active tracking. This creates a clean audit trail from acquisition to disposal.

Tips & Best Practices

Tip: Establish a clear capitalization threshold in consultation with your auditor before you begin entering assets. This avoids inconsistency where some small items are capitalized and others are not.

Tip: Assign a unique asset code to every fixed asset, even if you have only a handful of machines. As the business grows, you will be glad you started with a systematic coding convention. A simple format like PLM-001, VEH-001, FUR-001 works well for small factories.

Tip: Record the full acquisition cost of an asset, including freight, installation, and non-refundable taxes. Under-recording the cost leads to under-depreciation and an inaccurate balance sheet.

Tip: When migrating from a manual register to ERP, enter each asset's original purchase cost, purchase date, and accumulated depreciation to date. This ensures the ERP can calculate future depreciation correctly and your book values match the previous records.

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