Property, Plant, and Equipment Narrative

The Property, Plant, and Equipment process consists of the following activities: Acquisition o o o o Budgeting Approvals for Actual Spend Purchase Orders/Invoicing Recording

Depreciation Disposals Managing Fixed Assets Impairment & Revaluation

Acquisitions Budgeting An annual budget is prepared to estimate all capital expenditures necessary for the ensuing year. The Plant Controller and Plant Manager meet to discuss and prepare this budget for the ensuing year. Once established at the plant level, the budget is uploaded into the ERP and approved by the Vice President Finance. Approvals for Actual Spend The scope of the capital expenditure project is determined by a cross-functional team, including representatives from Plant Engineering Department, the Plant Controller, and the Purchase Controller. Next, the Plant Controller loads the expected spend amount, timing, and payback schedule into the ERP. Once loaded, the project is routed to the Global Director of Capital Project Management for approval. The Plant Controller then schedules a meeting with the cross-functional team Global Director of Capital Project Management, Global Engineering Manager, and Product Group Controller to obtain the Project Financial Analysis approval. The Global Director of Capital Product Management updates the status to show approved in the ERP and the ordering process can begin. Purchase Orders/Invoicing Purchase requisitions are initiated at the plant level, by the Plant Engineer. Once initiated, the Plant Manager and Plant Controller must approve the purchase requisition. Once the purchase requisition is approved it is sent to the Purchasing Department for procurement in ERP. (Refer Accounts Payable for procurement process). Each year, an annual budget is prepared to estimate all capital expenditures necessary for the following year. During late Q2, the Controller, Engineering Manager, and Plant Manager meet to
Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.

discuss and prepare this budget for the following year. Once established at the plant level, the budget is uploaded into the ERP system and approved by the Product Group Controller. At the end of every month, the Plant Manager and the Product Group Controller prepare a Variance Analysis spreadsheet to compare the forecast along with the actual spending to the budgeted expense. Any variance greater than the threshold limit should go through the entire approval process above. The Plant Manager and the Product Group Controller will also closely review the variances exceeding the threshold limit and will determine whether any capital improvements made to Property, Plant, and Equipment have been expensed instead of being capitalized (R_PPE_4), (C_PPE_4). Recording The Plant Controller works with plant personnel to determine when Construction in Process (CIP) is complete and transferred to fixed assets. Once determined to be a capitalized, the Plant Controller completes the Property Management Report (PMR) form and sends it to the Finance Accountant for booking. In the case of direct purchase (No CIP), the Plant Controller also completes the PMR form and sends it to the Finance Department for booking. The Finance Accountant is responsible for recording the transfer of the CIP into the Fixed Assets register and recording the journal entry into the general ledger based on the PMR. The Finance Accountant obtains the Purchase Requisition, Property Management Report, and Purchase Invoice to ensure completeness, accuracy, and the legal title of all the additions; once complete, the Finance Accountant creates a journal entry to record to the ERP (R_PPE_2) (C_PPE_2). The Finance Manager reviews the journal entry by obtaining the Purchase Requisition, PMR, and the Purchase Invoice and then completes the posting of journal entry into the ERP system (R_PPE_3), (R_CAS_5) (C_PPE_3). The Finance Accountant also establishes the depreciation method when recording the fixed asset in fixed assets register. The fixed asset register is maintained by the Finance Department. On a monthly basis, the Finance Accountant reconciles the fixed asset register to the general ledger. The reconciliation is reviewed by the Finance Manager and any differences identified are investigated and resolved by the preparer (R_PPE_7) (C_PPE_6). Deprecation The ERP system automatically calculates the depreciable amount based on the useful life and the depreciation methods that are entered in the ERP. On monthly basis, a Fixed Assets Report is extracted from the ERP by the financial accountant for verifying the correctness of the depreciable amount applied until the present, the future depreciable expense amount , and the depreciation method used. Once verified by the financial accountant, the report is forwarded to the Financial Managers for approval. Once approved by the financial managers, the accountant books a depreciation journal entry in the ERP. The journal entry and supporting documents are reviewed by the Finance Manager prior to booking in the ERP (R_PPE_6) (C_PPE_3). At the end of each quarter, the Finance Manager prints out a detail Fixed Asset Report from the ERP system and verifies the useful life, depreciation rates, and depreciation method, and for a sample of assets recalculates the depreciation expenses to its check the accuracy (R_PPE_5) (C_PPE_5). Disposals Disposals are identified by plant personnel. Once identified, the Plant Controller completes the Asset Retirement Form, inputting necessary information such as type of asset, value, any proceeds from sale, etc., and submits to the Finance Accountant for processing. The Finance Accountant is responsible for recording the asset disposal into the Fixed Assets register and recording the journal entry into the general ledger based on the approved Asset Retirement Form. The journal entry and supporting documents are reviewed by the Finance Manager prior to booking in the ERP (R_PPE_6)

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Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.

(C_PPE_3). The Finance Accountant performs all calculations such as gain or loss on disposal/scraping of fixed assets. Managing Fixed Assets Physical Inventories On an annual basis, physical inventories are performed, with the results reconciled with the Fixed Asset Register. The physical inventories are performed by the Operation Manager, the Accounting Manager, and the Engineering Team (R_PPE_1) (C_PPE_1). This is to verify whether all items listed on the books exist and whether all assets that physically exist have been recorded in the books. Impairment and Revaluation A quarterly meeting is also held between the Operations Manager and Accounting Manager to identify Impairment indicators/upward revaluation for fixed assets that may exist. The lists of assets identified for impairment/upward revalued are approved in the meeting (R_PPE_8) (C_PPE_7). All write-offs/adjustments are sent to the Finance Accountant for booking. The journal entry and supporting documents are reviewed by the Finance Manager prior to booking in the ERP (C_PPE_3). IPE: PPE_IPE_1 Purchase requisition PPE_IPE_2 Variance Analysis Spreadsheet PPE_IPE_3 Property Management Report PPE_IPE_4 Fixed Asset Report
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PPE_IPE_5 Asset Retirement Form

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Note: This document is an illustrative example and is for information and education purposes only. It is not a substitute for professional advice, services, nor an entitys own internal control procedures and should not be used or relied on as such.