Points to Implement a Fixed Asset Management System in Indonesia

In fixed asset depreciation, the straight-line method suppresses initial expense burdens to generate profit quickly, while the declining balance method accelerates expense recognition to suppress profit and achieve tax savings.

Fixed Asset Management in Indonesia

Few companies in Indonesia have implemented fixed asset management systems, and most Japanese companies manage their fixed asset ledgers in Excel with the following information:

In Indonesia, items that can be expensed as fixed assets are classified by their useful life:

Managing information such as "when and for how much it was acquired" and "how much depreciation period remains," along with generating automatic depreciation entries at month-end based on this information, are functions of a fixed asset management system.

Functions of a Fixed Asset Management System

Acquisition Management

Entering an acquisition in the fixed asset management system may generate a payable entry in the ERP’s payables management. Conversely, processing a receipt in the ERP’s purchasing management may automatically register it in the fixed asset ledger of the fixed asset management system.

When fixed assets are purchased in foreign currencies like USD or YEN, impairment processing must be done in the currency of acquisition, requiring a currency code in the generated entry.

Depreciation Management

Tangible fixed assets are classified into categories such as buildings, structures, vehicles, and equipment. The total amounts calculated by category using the declining balance or straight-line method in Excel are recorded as negative assets using the indirect method in journal entries.
This is done within the month-end closing entries to record the accumulated depreciation amount under the acquisition cost of fixed assets on the B/S, indicating "how much has been depreciated so far."

For intangible fixed assets (e.g., software), the direct method is used to expense the asset.

Transfer Management

No expenses are incurred during fixed asset transfers, but when managing profit/loss by arbitrary aggregation units such as department, line, or machine, offsetting entries are needed to reassign aggregation groups.

To aggregate assets by department in the accounting system, department codes are required for fixed asset accounts in the G/L.

Impairment Management and Extraordinary Loss Management

Impairment processing should be handled cautiously as it can easily lead to profit manipulation. While Japan does not allow the reversal of impaired fixed assets, IFRS permits it.
This stems from IFRS’s aim to reflect the true state of corporate assets in financial statements. It’s a logically sound argument that if an asset’s value rises again after a decline, it should be reflected as the asset’s valuation. However, excessive impairment processing is generally seen as undesirable.

Retirement and Disposal Management

Retirement refers to ceasing use and treating the asset as stored goods under separate management, while disposal involves recording it as a fixed asset disposal loss (expense account) with no valuation.

Sales Management

If the sales price exceeds the remaining value at the time of sale, a profit on sales is recorded; if it’s lower, a loss on sales is recorded.

Lease Management and Construction in Progress Management

Beyond fixed assets, managing lease asset contracts from start to expiration, including payment amounts and re-leasing, is also a function of the fixed asset management system.
Additionally, to manage advance or prepaid construction costs, material costs, labor costs, and expenses until the completion of construction or delivery of tangible fixed assets, Construction in Progress entries are generated.
The difference between work-in-process and construction in progress can be roughly understood as whether it’s for sale or not.
Inventory assets transition from materials to work-in-process to products for sale. However, items not intended for sale but purchased as materials, processed into work-in-process, and completed as internal assets—such as molds—are a prime example.
Equipment under an FOB contract is recorded as Construction in Progress when shipped from Japan and becomes on-board inventory. Upon arrival in Indonesia, it is transferred to fixed assets when brought into the factory and put into use (the date of use for business purposes), then depreciated based on its useful life.

For molds, they are recorded as Construction in Progress when mold materials are purchased and surface processing begins. Once completed as a finished mold through work-in-process, they are transferred to fixed assets, and depreciation begins in accounting.
Construction in Progress serves as a convenient temporary holding place for assets not subject to depreciation, but prolonged, unnatural retention can attract audit scrutiny.

Depreciation Calculation Methods

In Indonesia, depreciation calculations are generally performed monthly. However, if the disparity between a fixed asset acquired on the 1st and one acquired on the 31st of the same month—31 days versus 1 day of use—resulting in the same depreciation amount for the month is seen as problematic (akin to a "one-vote disparity"), daily depreciation calculations may be used.
In monthly calculations, fixed assets acquired within the month are uniformly treated as used for one month, resulting in higher expense recognition than daily calculations, which is advantageous for tax purposes.

Straight-Line Method

The straight-line method suppresses initial expense burdens, making it suitable for startups or businesses prioritizing early profit generation.

Declining Balance Method

Indonesia is currently experiencing a booming economy, and for companies with steadily growing sales, accelerating expense recognition suppresses profit, aids tax savings, and speeds up investment recovery.
Unrelated, but my beloved car—Toyota Avanza, practically Indonesia’s national car now—cost about 165 juta a year ago. If I sold it now, it’d fetch around 145 juta (a 20 juta drop). Selling it next year wouldn’t drop another 20 juta—it’d be around 140 juta. The declining balance method follows a similar logic: a sharp initial drop, then a slower decline.

Linking Physical Labels and Fixed Asset Ledgers

To link inventory information in the form of a fixed asset ledger in the system—such as "what is where" and "when and for how much it was purchased"—with physical labels attached to items, fixed asset codes are often barcoded and used as physical labels.

Criteria for Distinguishing Current Assets, Fixed Assets, and Supplies (Supplies Expense)

In Indonesia, as in Japan, assets are classified into current and fixed assets based on their convertibility to cash (within one year). Current assets expensed upon consumption are recorded as Supplies or Supplies Expense and typically do not generate receipt/issuance transactions in the production management system.
Current Assets

Fixed Assets

Supplies

For molds, even if their useful life is less than one year, they are classified as Category 1 fixed assets due to their high acquisition cost. However, smaller auxiliary molds may be expensed as supplies upon acquisition or grouped with molds and treated as fixed assets.
As fixed assets, they are recorded as negative assets using the indirect method. This means listing the accumulated amounts of "how much has been depreciated" and "how much loss has been recognized" under the purchase cost of fixed assets on the B/S.

There are two methods to record molds as fixed assets:

Differences Between Accounting and Taxation

A company’s earnings are profit in corporate accounting and taxable income in tax accounting. Entertainment expenses recorded on the P/L are not always deductible (treated as tax-deductible expenses), and a fully depreciated car sold may be recorded as an extraordinary gain/loss in corporate accounting.

Companies want to expense quickly to reduce taxes, but expensing too fast just results in losses, so they aim to depreciate as quickly and evenly as possible to reduce profit. Tax authorities, however, prefer longer useful lives to minimize profit suppression and maximize tax revenue. This is the difference between accounting (management) and taxation. Ideally, they should align, but managing them separately is complex.
Fixed asset systems manage tax accounting, classifying and depreciating assets appropriately under tax laws. Meanwhile, mold management systems calculate depreciation based on shot performance at the production site, automatically computing fixed asset disposal losses or miscellaneous income (remaining value) from disposals or sales within the depreciation period.
In practice, the accounting department manages the valuation from the fixed asset management system and the mold management system separately.

Functions of a Mold Management System

The core of a mold management system is depreciation management based on lifespan control. For internally produced molds, receipt (Good Receive) occurs upon completion; for purchased molds, it occurs upon receipt. Issuance (Good Issue) occurs based on shot performance from pressing or molding, and depreciation is calculated by multiplying the material unit cost and standard processing cost per shot.

For internally produced molds, receipt/issuance performance is managed from mold materials through work-in-process to finished products. Like regular inventory assets, cost accounting is performed after month-end closing.
For finished molds, the mold master holds standard lifespan, material unit cost, and standard processing cost. Receipt/issuance performance (receipt/completion/shot) is recorded in the mold receipt/issuance table, with the latest information stored in the mold inventory table.
Month-end closing is performed, and closing information is stored in the mold balance table (balance master). The mold depreciation receipt/issuance table carries forward the remaining book value as the opening balance for the next month.
Managing receipt/issuance and recalculating depreciation chronologically when historical corrections occur is similar to the fixed asset management system.