Year-end fixed asset closing checklist

A fixed asset close goes wrong mostly through sequence: depreciation is run before the last capitalisation, or the Schedule III note is drafted before verification differences are written off. The steps below follow the order in which each one feeds the next. Day counts are measured from the balance sheet date (T, normally 31 March) and are an example internal calendar, not statutory deadlines.

Walk through every open CWIP project with its owner. For each, decide whether the asset was available for use by T, meaning it was in the location and condition needed to operate as management intended (AS 10 and Ind AS 16). Depreciation in the books starts on that date, even if production starts later. Costs that are not directly attributable, such as staff training and general overheads, are expensed rather than capitalised.

What remains in CWIP after this review is what goes into the CWIP ageing table, so the review also tells you which projects are overdue or over budget.

Additions cut-off

Match goods receipts in the last weeks of the year with invoices. An asset received and available for use by T belongs in this year even if the invoice arrives later; accrue it. An invoice dated before T for goods still in transit does not make an addition.

Disposals and write-offs

Record each sale or scrapping with its date, so depreciation stops the day before and the gain or loss is right. Where input tax credit was taken on the asset, section 18(6) of the CGST Act requires the higher of the credit taken reduced by five percentage points for every quarter or part of a quarter since the invoice date, and the tax on the transaction value. Assets written off, lost or destroyed raise a separate question under section 17(5)(h) on the credit already taken; settle the treatment with your tax adviser. See GST input tax credit on capital goods.

Transfers

Post transfers between branches, locations and cost centres before T so the register shows where each asset sits at the balance sheet date. Where the two branches have different GSTINs, check the GST position of the transfer.

• Componentisation. Where a part of an asset is significant in cost and has a different useful life, it is depreciated separately (Schedule II, and Ind AS 16). Check new additions and major replacements for components; a replaced component is derecognised.
• Useful life, residual value and method. AS 10 and Ind AS 16 require them to be reviewed at least at each financial year-end. A change is a change in accounting estimate, applied prospectively. Record the reason, because a life or residual different from Schedule II needs a justification in the accounts.
• Impairment indicators. At each balance sheet date, look for signs that an asset may be impaired (AS 28 and Ind AS 36): idle plant, physical damage, a product line being discontinued, obsolescence or a sharp fall in output. Where an indicator exists, estimate the recoverable amount.

Assets found damaged or idle during verification are a ready source of impairment indicators, so read the verification results before signing off this step.

CARO 2020 clause 3(i)(b) asks whether management verified property, plant and equipment at reasonable intervals and whether material discrepancies were properly dealt with in the books. Before the depreciation run:

1. Close counting and classify every result: verified, missing, found elsewhere, custodian mismatch, damaged, unidentified.
2. Resolve each discrepancy through a document: a transfer for an asset found elsewhere, a write-off for an asset confirmed missing, an addition for an asset on the floor that was never recorded.
3. Account for write-offs at the NBV on the date of write-off, with the GST effect above.
4. Obtain sign-off on the verification statement.

More detail is in CARO 2020 physical verification and the CARO 2020 fixed asset checklist.

Run depreciation only when the steps above are complete. Run the Companies Act book and post its journal; run the income-tax book as the block computation for the return and the tax audit. Review the runs for the usual errors: assets with no put-to-use date, assets past end of life still being charged, and disposals still depreciating.

Then reconcile, account by account: register cost and accumulated depreciation against the ledger, and the depreciation charge against the expense account. Each difference should be explained or corrected before the note is drafted. For the link between the two books, see Reconciling book and tax depreciation.

• Schedule III note: gross block, accumulated depreciation and net block by class, with additions, disposals and previous-year figures. Since the 2021 amendment, also the CWIP ageing (under one year, one to two, two to three, more than three, split between projects in progress and temporarily suspended), the completion schedule for overdue or over-budget projects, and immovable property whose title deeds are not held in the company's name.
• CARO 3(i) file: the register with quantitative details and situation; the verification programme and signed statement; the title-deed list; revaluation records if any.
• Form 3CD clause 18: block-wise opening WDV, additions with put-to-use dates, deductions, depreciation allowable and closing WDV.

When the figures are final, close the periods and lock the year so that no back-dated capitalisation, disposal or master change can alter them. Any later correction should go into an open period as a new entry, with its reason.

From 1 April 2023, Rule 3(1) of the Companies (Accounts) Rules requires accounting software that records an audit trail of every change, which cannot be disabled. Section 128(5) of the Companies Act requires books of account to be preserved for eight years. Keep the audit trail with the year's evidence.

A printable version for the auditor's file is the fixed asset audit checklist.