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[Design Proposal] Conversion of Stock item to Fixed Asset and vice versa

Hi,

Here is the design proposal for the feature which will allow your consume the stock item to Fixed Asset and vice versa. Is Asset Capitalization & De-capitalization of correct term for it?

Based on the discussion below, there can be three types of capitalization entries.

  1. Asset Capitalization: Stock to Fixed Asset
  2. De-capitalization: Fixed Asset to Stock
  3. Fixed Asset to Fixed Asset

Stock Item to Fixed Asset

Let’s assume we purchased CPU peripherals as a stock items, and now consuming them to get a Server, which will be Fixed Asset item.

Stock items

Considering that there could be multiple Stock Item’s getting consumed for create a single fixes asset, I propose a child table for the stock item.

  1. These are the items and Qty which will get consumed from stock
  2. Based on the valuation method, item’s valuation will be posted
  3. Total value of item will be calculated. The value of fixed asset has to tally to this value!

Fixed Asset Item

  1. This will be a single Fixed Asset Item` Fixed Asset table will be child table, as there could be multiple fixed asset items.
  2. Fixed Asset will be created before the creation of this entry, as an existing Asset.
  3. The value of this Fixed Asset must be equal to the total value of Stock items consumed.

Postings

Stock Ledger Posting

Item Qty Warehouse
Item 1 -3 Stores
Item 2 -4 Stores
Item 3 -5 Stores

Let’s assume total value of item is $5,000

General Ledger Posting

Accounts Debit Credit
Stores 5000
Fixed Asset a/c 5000

The vice versa will be happening when a Fixed Asset is converted into stock items. However, the flow of fields in the form will have to be set in that order. First select Fixed Asset Item, and then stock item.

Questions:

  1. Is the stock ledger and general ledger posting as simple as this? Could there be taxation part being involved here?
  2. In case of capitalization, before creation of this entry, a Fixed Asset item will have to be created as a Exising Asset item. Does that sound fine?
  3. Just like there are multiple Stock items, could there be scenario wherein multiple Fixed Asset items will be getting consumed or produced at once in a single entry?
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Great.There should be a situation also that a single non current (fixed asset) asset is broken into two or more other non current assets and could be depreciated at different rate.Let factor this also because such is common under IFRS.

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@umair

1 - In South America, all the cases I know, that there’s taxation on “Asset Capitalization” it’s because there’s labor involved, and the labor, 90% of the time, is the taxable part, the unique situation where labor go to assets, that I know are in third-party maintenance, or sub-contract on top of assets geo-placed (like telecom, water and eletricity networks)

2 - Completely fine!

3 - Yes, it’s really common in telecom, energy, water distribution, where your assets are distributed across lands.

An question I do have here is, should not the asset recapitalization be part of “Asset Maintenance” also? Because, some times, when doing a maintenance of an asset, you may will consume parts from inventory, and these parts will be capitalized.

Any chance to account as well for the situation when there is lending/renting of assets on regular basis. Think Library, think event planning, thinking renting of heavy duty machinery/tools, etc.

@f_deryckel there’s already an way to achieve this in ERPNext, it’s not documented, but it’s there!

The unique additional step, is that you will need to create an “Asset Location” and move the asset.

There should be a situation also that a single non current (fixed asset) asset is broken into two or more other non current assets and could be depreciated at different rate.Let factor this also because such is common under IFRS.

So, the Fixed Asset to Fixed Asset conversion, that too many-to-many, having same valuation rate at the time conversion, right?

In South America, all the cases I know, that there’s taxation on “Asset Capitalization” it’s because there’s labor involved, and the labor, 90% of the time, is the taxable part, the unique situation where labor go to assets, that I know are in third-party maintenance, or sub-contract on top of assets geo-placed (like telecom, water and eletricity networks)

@max_morais_dmm Thanks for the detailed replies. Adding my replies below.

If there is a third party involved doing assembling or dismantling work, I presume there will be Purchase Invoice made for that supplier and labour charges? And I think that will be ideal, as taxes booked via invoices will be easily to be picked in taxation report, generally required for statutory filing etc. Please add your thoughts.

Yes, it’s really common in telecom, energy, water distribution, where your assets are distributed across lands.

Aright then. Fixed Asset will also become child table. Will update original post accordingly.

An question I do have here is, should not the asset recapitalization be part of “Asset Maintenance” also? Because, sometimes, when doing maintenance of an asset, you may will consume parts from inventory, and these parts will be capitalized.

I believe it can be adjusted as:

  • Material Issue for the consumed Item
  • Asset Value Adjustment, to add the value of the consumed item in the existing asset?

Still, let us see if we can accommodate this feature in Asset Value Adjustment only.

@umair, yes, you can have an external, but, not in all the times!

You are fully right, that pick taxes from invoices makes sense.

Right, I just guess it lots of steps, that arent coupled thogeter, and users will try to emulate what I told using asset capitalization, for Mainteance also.

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Yes,the valuation of the original asset equal the sum of the two or three assets divided into.However the new assets could be depreciated at different rate from the original.Meaning the newly created assets number of depreciation remaining could be varied

what happens if the de-capitalization of Asset is happening in the middle of the year? It might happen that last depreciation was posted in the beginning fiscal year.

Should there be last depreciation entry for the duration of the last depreciation - to - de-capitalization date?

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Depreciation should be recognized to the point of decapitalization or the end of the month before the decision since many organization using assets module must have enable monthly depreciation

@umair what is status of this? i would like to contribute for this feature

This is exactly the use-case I need. I would also be willing to help contribute for this feature.

I make computers and servers for various uses and want to keep track of the costs associated with each and the serial number of each item in the computer along with receipts etc.

And need to adequately track the depreciation.
I’m pretty good with Python so if there’s a need for help with this, I’m happy to help.

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I can answer the 1st question.
There can be taxation involved.

In Canada for example, goods are not subject to PST if they are for resale only.
However, items for capital expenses ARE subject to PST.

So if an item was brought in as a stock item for resale, then likely tax would not have been paid. However, if we consume it for a fixed asset, we would then be liable to submit the PST.

So in that case, a liability would need to be created under the proper tax account(s).

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@umair can you please tell me if there is a branch for this? I need this feature, so if there’s a branch for this I will finish it myself. Otherwise please let me know if I need to create this from scratch.

@umair
So I almost got this working with just the manufacturing module.
You can create a Fixed Asset item.
You can create a BOM for said fixed asset item.
You can get to the very end of a Work Order after creating a BOM for a fixed asset item/
But once you get to the end, you can’t complete the work order as an error message pops up:
“XXX is not a stock item”.

So essentially only the ending Stock Entry is what needs to be changed to have this work without a whole new module/feature.

I believe just a check on if “fixed asset” is enabled on the “Item” on the BOM/Work Order section of manufacturing should be able to adjust from stock to FA register without a siginificant amount of work. I’ll explore more this week.

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