Eliminating Ghost Assets
Ghost assets exist on the books but are no longer the property of the company. They were sold, lost, damaged or stolen or are just obsolete. Appraisal district valuation tables typically have a residual life of ten to thirty percent. Hence, a fifty-year-old drill-press would be valued at ten to thirty percent of cost. Removing any additional cost basis from the depreciation schedule is a direct and acceptable means to increase depreciation. It will also reduce personal property taxes.
Fixed asset management systems seek to track fixed assets for the purpose of financial accounting, risk management, and accountability. Management systems also help ensure the existence and proper replacement of property, removing “ghost” assets from the books. Studies show that, for large organizations, as much as 20 percent of their assets are no longer in service, have been disposed of without record, or have been lost. Depending on the value of those assets, correcting asset and insurance records can cause a significant reduction in insurance costs.
Ghost assets can occur from many causes including omission of updating the fixed asset listing, mergers where information was not complete, and other causes.
A practice tip to reducing ghost assets is to have an annual “asset-clean-up” day similar to the process some people use to purge paper files. If the process has not been done in years, the potential savings from property taxes and income taxes (due to additional depreciation) is even larger in the first year.