The Fast Close Toolkit

CHAPTER THIRTY ONEFixed Assets and the Capital Budget

INTRODUCTION: THE EFFICIENT ALLOCATION of capital resources is a most crucial function of financial management. This function involves organization's decision to invest its resources in long-term assets like land, building facilities, equipment, vehicles, and so forth.

The future development of a firm can hinge on the capital investment projects, the replacement of existing capital assets, and/or the decision to abandon previously accepted undertakings that turn out to be less attractive to the organization than was originally thought, and directing the resources to the contemplation of new ideas and planning.

BEST PRACTICE 21: ESTABLISH A CAPITAL BUDGET PROCESS

Introduction: All assets are extremely important to the firm because, in general, all the organizational profits are derived from the use of its capital in investment in assets that represent a very large commitment of fiscal resources, and these funds usually remain invested over a long period of time.

• Establish a procedure for the planning and control of fixed assets.
• Establish the criteria for the approval process.
• Review approval limits to ensure that the company's delegation of authority policy is followed.
• Establish a review and approval process.
• Review projected return rates.
• Ensure that capital expenditures reflect the organization's strategic plan and that the funds are available to pay for the expenditures.
• Review economic alternatives to asset purchases ...