A disconnect may occur between the financial and ground operations -- especially for companies with manufacturing facilities in other countries far from their incorporated headquarters.
Common mistake #1: Counting of units
The disconnection may include errors arising from simple counting of units of machines that may have been separately accounted for as “each” in the accounts and a “set” in the ground operations.
Machines are viewed differently in ground operations vis-a-vis machines from a finance perspective. After several years, the finance department may be told, for instance, that a computer numerical control (CNC) machining centre that was classified as “each” / “one” machine does not include a worktable, spindle, chucks, transformer, controller, etc.
This may give rise to a potential false count and false asset cost that differs from the original cost of the asset when it was first purchased, which will then affect its value.
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Common mistake #2: Asset tagging
Another common error is asset tagging. Such errors are usually not discovered until a valuation is conducted.
There have been cases of ground operations showing the same asset to the accountant multiple times and identifying it as different line items within the same asset listing. This can lead to a highly overstated situation in the asset listing.
Common mistake #3: Discrepancies in asset descriptions
Discrepancies in the description of assets from the actual assets on the ground are also common. This gives rise to an artificially inflated value if an inspection was not conducted.
During the valuation process of industrial machinery, for example, a 200T die-casting machine could be wrongly described as a 450T -- this would result in an inaccurate statement of the asset’s value. Should such issues occur, a valuation is recommended to be conducted to rectify them and to provide an accurate value of the assets.
Check in with Colliers' experts today to understand the true value of your business assets and to avoid mistakes in valuating your business.
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