Fixed Asset Register and Depreciation for Nigerian Businesses

Fixed assets are significant investments for any business. Maintaining a proper fixed asset register and calculating depreciation correctly is essential for accurate financial statements and tax compliance. This guide explains how to manage your fixed assets effectively.

What Are Fixed Assets?

Definition

Fixed assets (also called property, plant and equipment) are:

• Long-term tangible assets
• Used in business operations
• Not intended for sale
• Useful life exceeding one year

Examples

Category	Examples
Land	Commercial plots, factory sites
Buildings	Offices, warehouses, factories
Plant & Machinery	Production equipment, generators
Motor Vehicles	Delivery trucks, company cars
Furniture & Fixtures	Desks, chairs, shelving
Office Equipment	Computers, printers, phones
Leasehold Improvements	Renovations to rented premises

The Fixed Asset Register

What It Is

A fixed asset register is a comprehensive record of all fixed assets owned by the business.

Required Information

For each asset, record:

Field	Description
Asset ID	Unique identifier
Description	What the asset is
Category	Classification (building, vehicle, etc.)
Location	Where the asset is
Acquisition date	When purchased
Acquisition cost	Purchase price + incidentals
Useful life	Expected years of use
Depreciation method	How depreciation is calculated
Depreciation rate	Annual percentage
Accumulated depreciation	Total depreciated to date
Net book value	Cost minus accumulated depreciation
Disposal information	If sold or scrapped

Sample Register Entry

Asset ID: FA-2025-001
Description: Toyota Hilux Pickup Category: Motor Vehicles Serial Number: TY123456789 Location: Head Office, Lagos Custodian: Sales Department
Acquisition: Date: January 15, 2025 Cost: ₦25,000,000 Vendor: ABC Motors Limited Invoice: INV-2025-1234
Depreciation: Method: Straight-line Useful life: 5 years Annual rate: 20% Residual value: ₦0
Status: Active

Understanding Depreciation

What Is Depreciation?

Depreciation is the systematic allocation of an asset's cost over its useful life. It reflects that assets lose value through:

• Wear and tear
• Obsolescence
• Time

Depreciation vs Capital Allowances

Aspect	Accounting Depreciation	Tax Capital Allowances
Purpose	Financial reporting	Tax computation
Rates	Company chooses	Prescribed by law
Method	Various options	Reducing balance
Recognition	In financial statements	In tax return

Note: For tax purposes in Nigeria, you add back accounting depreciation and claim capital allowances instead.

Depreciation Methods

1. Straight-Line Method

Equal amounts each year.

Formula:

Annual Depreciation = (Cost - Residual Value) ÷ Useful Life

Example:

Item	Value
Cost	₦10,000,000
Residual value	₦0
Useful life	5 years
Annual depreciation	₦2,000,000

Year	Depreciation	Accumulated	NBV
1	2,000,000	2,000,000	8,000,000
2	2,000,000	4,000,000	6,000,000
3	2,000,000	6,000,000	4,000,000
4	2,000,000	8,000,000	2,000,000
5	2,000,000	10,000,000	0

2. Reducing Balance Method

Higher depreciation in early years.

Formula:

Annual Depreciation = Net Book Value × Rate

Example (25% rate):

Year	Opening NBV	Depreciation	Closing NBV
1	10,000,000	2,500,000	7,500,000
2	7,500,000	1,875,000	5,625,000
3	5,625,000	1,406,250	4,218,750
4	4,218,750	1,054,688	3,164,063
5	3,164,063	791,016	2,373,047

3. Units of Production Method

Based on actual usage.

Formula:

Depreciation = (Cost - Residual) × (Units Used ÷ Total Expected Units)

Example (machine rated for 100,000 hours):

Year	Hours Used	Depreciation
1	25,000	₦2,500,000
2	20,000	₦2,000,000
3	22,000	₦2,200,000

Common Depreciation Rates

Accounting Depreciation (Suggested)

Asset Category	Typical Rate	Method
Buildings	2-5%	Straight-line
Plant & Machinery	10-20%	Straight-line or reducing
Motor Vehicles	20-25%	Straight-line or reducing
Furniture & Fixtures	10-15%	Straight-line
Computer Equipment	25-33%	Straight-line

Tax Capital Allowances (Statutory)

Asset Category	Initial	Annual
Buildings	15%	10%
Plant & Machinery	50%	25%
Motor Vehicles	50%	25%
Furniture & Fixtures	25%	20%
Computer Equipment	50%	25%

Recording Depreciation

Journal Entry

Monthly or annual depreciation entry:

Account	Debit	Credit
Depreciation Expense	₦200,000
Accumulated Depreciation - Vehicles	₦200,000

Effect on Financial Statements

Statement of Profit or Loss:

• Depreciation expense reduces profit

Statement of Financial Position:

• Accumulated depreciation reduces asset value
• Shows net book value

Asset Acquisitions

What to Include in Cost

Include	Exclude
Purchase price	Operating costs
Import duties	Training costs
Delivery costs	Maintenance costs
Installation costs	Insurance
Professional fees (related)	Interest
Site preparation

Recording Acquisition

Account	Debit	Credit
Motor Vehicle	₦25,000,000
Cash/Bank	₦25,000,000

Asset Disposals

When You Sell or Scrap

Calculate gain or loss:

Scenario 1: Sale at Gain

Item	Amount
Cost	₦10,000,000
Accumulated depreciation	₦6,000,000
Net book value	₦4,000,000
Sale price	₦5,000,000
Gain on disposal	₦1,000,000

Journal Entry:

Account	Debit	Credit
Cash/Receivable	5,000,000
Accumulated Depreciation	6,000,000
Motor Vehicle	10,000,000
Gain on Disposal	1,000,000

Scenario 2: Sale at Loss

Item	Amount
Cost	₦10,000,000
Accumulated depreciation	₦6,000,000
Net book value	₦4,000,000
Sale price	₦3,000,000
Loss on disposal	₦1,000,000

Best Practices

1. Maintain Accurate Records

• Record all assets when acquired
• Update register for changes
• Verify assets physically

2. Regular Physical Verification

Frequency	Activity
Annual	Full physical count
Quarterly	High-value items
Ad hoc	When issues suspected

3. Consistent Policies

• Document depreciation policies
• Apply consistently
• Disclose in financial statements

4. Review Useful Lives

Periodically review:

• Are estimates still appropriate?
• Any impairment indicators?
• Update if circumstances change

5. Proper Authorization

Activity	Authorization
Asset acquisition	Management approval
Asset disposal	Management approval
Write-offs	Board/management approval

How Finora Manages Fixed Assets

Asset Register

Complete fixed asset tracking:

• Record all asset details
• Automatic depreciation calculation
• Movement history

Depreciation Automation

Feature	Benefit
Auto-calculation	No manual calculations
Multiple methods	Straight-line, reducing balance
Monthly journals	Automatic depreciation entries
Tax schedules	Capital allowance computation

Asset Lifecycle

Track from acquisition to disposal:

• Purchase recording
• Depreciation tracking
• Disposal processing
• Gain/loss calculation

Reporting

Generate reports:

• Fixed asset register
• Depreciation schedule
• Movement report
• Capital allowance schedule

Frequently Asked Questions

What's the difference between depreciation and capital allowances?

Depreciation is for financial reporting (you choose method and rate). Capital allowances are for tax (rates prescribed by law). For tax, you add back depreciation and claim capital allowances.

Do I depreciate land?

No. Land typically has unlimited useful life and is not depreciated. Buildings on land are depreciated.

When do I start depreciating?

When the asset is available for use. Not necessarily when purchased if not yet deployed.

What about low-value items?

Items below a threshold (e.g., ₦50,000) may be expensed immediately rather than capitalized. Set and follow a consistent policy.

How do I handle improvements to assets?

Significant improvements that extend life or enhance capability are capitalized and depreciated. Minor repairs are expensed.

Conclusion

Proper fixed asset management requires:

• Comprehensive register of all assets
• Consistent depreciation policies
• Regular verification of physical assets
• Proper accounting for acquisitions and disposals
• Tax compliance via capital allowances

Good fixed asset management ensures accurate financial statements, proper tax compliance, and effective control over your business assets.

Finora automates fixed asset tracking, calculates depreciation automatically, and generates both accounting and tax schedules—simplifying a complex area of business accounting.

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