Convert fixed assets into inventory

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Nishtha (Querist)
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16 May 2016 sir,
i want to convert the fixed assets in inventory so what is the procedure of it
i want to convert the hoardings, banners etc. into inventory
pls suggest me the full procedure
asap.

Nishtha

Nishtha (Querist)
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17 May 2016 pls give me rly for this query

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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20 July 2024 Converting fixed assets into inventory involves a few steps to ensure proper accounting and compliance. Here’s a detailed procedure you can follow:

### Procedure to Convert Fixed Assets into Inventory:

1. **Identify Assets to be Converted:**
- Determine which fixed assets you intend to convert into inventory. In your case, this includes hoardings, banners, etc.

2. **Assess Book Value:**
- Determine the current book value of the fixed assets you wish to convert. This is typically the original cost of the asset less accumulated depreciation.

3. **Approval and Documentation:**
- Obtain approval from appropriate authorities within your organization, such as senior management or the board of directors, depending on your company’s policies.
- Prepare necessary documentation outlining the decision to convert the fixed assets into inventory. This may include a resolution or minutes of the meeting where the decision was made.

4. **Valuation:**
- Determine the fair market value of the fixed assets as of the date of conversion. This can be based on recent appraisals, market value assessments, or similar methods.
- Alternatively, if the fair market value cannot be reliably determined, use the book value as the basis for the inventory valuation.

5. **Accounting Entries:**
- Record the accounting entries to reflect the conversion:
- **Debit Inventory Account:** Increase the inventory account on the balance sheet by the fair market value or book value of the assets being converted.
- **Credit Fixed Assets Account:** Decrease the fixed assets account on the balance sheet by the same amount.

6. **Tax Implications:**
- Consider any tax implications of the conversion. Consult with a tax advisor to ensure compliance with tax laws regarding depreciation recapture or other relevant tax considerations.

7. **Inventory Management:**
- Once recorded, manage the converted items as inventory. This includes tracking them in your inventory management system, conducting physical counts, and managing inventory levels.

8. **Reporting:**
- Disclose the conversion in your financial statements. Provide adequate notes explaining the conversion and the rationale behind it.

### Additional Considerations:
- **Legal and Regulatory Compliance:** Ensure compliance with accounting standards and regulatory requirements applicable to your industry and jurisdiction.
- **Auditing:** Prepare for potential auditing of the conversion process by maintaining thorough documentation and supporting evidence.
- **Communication:** Communicate the conversion internally to relevant stakeholders, such as finance teams, inventory managers, and auditors.

By following these steps, you can effectively convert fixed assets such as hoardings and banners into inventory while maintaining proper accounting practices and compliance with regulations. If you have specific valuation concerns or tax implications, it’s advisable to seek guidance from a qualified accountant or financial advisor.

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