Asset Lifecycle — Acquisition to Disposal

A fixed asset in your factory does not exist in a single, unchanging state. A CNC machine is purchased, put into active service, depreciated over the years, sent for maintenance when needed, brought back into production, and eventually either sold to a buyer or scrapped when it is no longer viable. Udyamo ERP Lite models this complete lifecycle through distinct statuses and actions on the Asset record, combined with DepreciationEntry records that track the financial decline in value over time. This chapter walks you through every stage of the asset lifecycle, from the moment you record the acquisition to the final disposal or scrap entry.

What You Will Learn

• How to create an asset record in Udyamo ERP Lite
• The four asset statuses and how transitions between them work
• How to create depreciation entries and understand the accounting impact
• How to send an asset for maintenance and return it to active service
• How to dispose of an asset and calculate profit or loss on sale
• How to scrap an asset and write off its remaining book value
• The journal entries generated at each stage

Prerequisites

• Understanding of fixed asset concepts (covered in Chapter 43)
• Asset categories created in the system (covered in Chapter 44)
• Familiarity with journal entries and double-entry accounting (covered in Chapters 31 and 33)

Asset Status Overview

Every asset in Udyamo ERP Lite has a status field that reflects its current operational state. The four possible statuses and the actions that trigger transitions are:

The lifecycle flows as follows:

                    send_for_maintenance
  [Active] ─────────────────────────────────> [Under Maintenance]
     ^                                              │
     │           return_from_maintenance            │
     └──────────────────────────────────────────────┘
     │
     ├── dispose ──────> [Disposed]
     │
     └── scrap ────────> [Scrapped]

Warning: Disposal and scrapping are terminal states. Once an asset is disposed or scrapped, it cannot be returned to active status. Verify the details carefully before performing either action.

Stage 1: Acquisition — Creating the Asset Record

When your organization purchases a new fixed asset, the first step is to create a corresponding record in Udyamo ERP Lite. This is the acquisition stage.

Step-by-Step: Adding a New Asset

Step 1: Navigate to Assets. From the main menu, go to Assets > Assets. This opens the asset list view.

Step 2: Click "New Asset." Click the New button to open the asset creation form.

Step 3: Fill in the asset details.

Required: Name, Asset Code, Asset Category, Purchase Date, and Purchase Cost are mandatory fields. All other fields are optional but strongly recommended for complete asset tracking.

Step 4: Save the asset. Click Save. The asset is created with the status Active and appears in the asset list. The current value is set to the purchase cost, and accumulated depreciation starts at zero.

Tip: Record the purchase cost inclusive of all costs necessary to bring the asset to its working condition — purchase price, freight, loading/unloading charges, installation costs, and non-refundable taxes. Input GST credit claimed should not be included in the asset cost.

Stage 2: Active — The Asset in Service

Once created, the asset is in Active status. During this phase:

• The asset is physically in use on the shop floor, in the office, or on the road.
• Depreciation entries are created periodically (monthly, quarterly, or annually depending on your accounting practice).
• Warranty and insurance expiry dates are tracked.
• The asset may be sent for maintenance as needed and returned to active status.

This is typically the longest phase in an asset's lifecycle, spanning the entire useful life of the asset — 3 years for a computer, 15 years for machinery, or 30 years for a building.

Stage 3: Depreciation — Recording the Decline in Value

Depreciation entries record the periodic reduction in an asset's book value. In Udyamo ERP Lite, the DepreciationEntry model stores each depreciation charge along with the resulting accumulated depreciation and book value.

Step-by-Step: Creating a Depreciation Entry

Step 1: Navigate to Depreciation Entries. Go to Assets > Depreciation Entries and click New.

Step 2: Fill in the depreciation entry details.

Tip: The depreciation amount for the CNC machine example is calculated as follows under SLM: (12,50,000 - 62,500) / 15 = Rs 79,167 per year. For a partial year (if the asset was purchased mid-year), prorate the amount based on the number of days the asset was in use.

Step 3: Save the entry. Click Save. The depreciation entry is recorded, and the asset's current value is updated.

The Accounting Impact

Each depreciation entry generates a journal entry with two lines:

The Depreciation Expense account appears on the Profit & Loss statement, reducing the period's profit. The Accumulated Depreciation account appears on the Balance Sheet as a deduction from the gross asset value, reducing the net book value shown to readers of the financial statements.

Tip: Many businesses create depreciation entries annually on 31 March (the end of the Indian financial year). However, if you need monthly financial statements for management review, create monthly entries by dividing the annual amount by twelve.

Depreciation Schedule Over Multiple Years

Continuing the CNC machine example under SLM with annual depreciation of Rs 79,167:

This schedule continues until the book value reaches the salvage value of Rs 62,500 at the end of the 15th year.

Stage 4: Maintenance — Temporary Removal from Service

Machines break down. Preventive maintenance is scheduled. When an asset needs to be taken out of active service temporarily, use the maintenance workflow.

Sending an Asset for Maintenance

Step 1: Open the asset record (e.g., CNC Vertical Milling Machine, PLM-012).

Step 2: Click the Send for Maintenance action button.

Step 3: The asset status changes from Active to Under Maintenance.

The asset remains in the register with its full financial history intact. Depreciation can still be charged during the maintenance period — the asset has not been disposed of, and under accounting standards, depreciation continues unless the asset is retired from active use permanently.

Tip: Use the Notes field to record maintenance details: What was the issue? Which vendor is handling the repair? What is the expected return date? This creates a useful history for future reference when evaluating the asset's ongoing viability.

Returning an Asset from Maintenance

Step 1: Open the asset record showing Under Maintenance status.

Step 2: Click the Return from Maintenance action button.

Step 3: The status changes back to Active.

The asset is back in service. No financial entries are generated for the status change itself — the cost of maintenance (spare parts, vendor charges) should be recorded as a revenue expenditure through a purchase bill or journal entry against a "Repairs & Maintenance" expense account.

Stage 5: Disposal — Selling the Asset

When an asset is no longer needed — perhaps you are upgrading to a newer machine, or the factory no longer requires a particular vehicle — you may sell it to a buyer. This is disposal.

Step-by-Step: Disposing of an Asset

Step 1: Ensure all depreciation entries are up to date through the date of disposal. If the asset is being sold on 15 September 2030, create a depreciation entry for the period from 1 April 2030 to 15 September 2030 (prorated).

Step 2: Open the asset record.

Step 3: Click the Dispose action button.

Step 4: The asset status changes to Disposed.

Profit or Loss on Disposal

When an asset is sold, the difference between the sale proceeds and the book value at the time of disposal determines whether there is a profit or loss:

• Sale proceeds > Book value = Profit on disposal (credited to income)
• Sale proceeds < Book value = Loss on disposal (debited to expense)

Example: The CNC machine has a book value of Rs 8,54,165 on the date of disposal. It is sold for Rs 9,00,000.

Profit on disposal = 9,00,000 - 8,54,165 = Rs 45,835

The journal entry for the disposal would be:

This entry removes the asset and its accumulated depreciation from the books and records the sale proceeds and the resulting profit.

Warning: Do not forget to account for GST on the sale of used fixed assets if applicable. The sale of used capital goods may attract GST under the margin scheme or at the applicable rate. Consult your tax advisor for the correct treatment.

Stage 6: Scrap — Writing Off the Asset

Sometimes an asset has no resale value. It is broken beyond economical repair, obsolete, or physically destroyed. In such cases, the asset is scrapped rather than disposed of.

Step-by-Step: Scrapping an Asset

Step 1: Ensure all depreciation entries are up to date through the scrap date.

Step 2: Open the asset record.

Step 3: Click the Scrap action button.

Step 4: The asset status changes to Scrapped.

Accounting Impact of Scrapping

When an asset is scrapped, the remaining book value is written off as a loss. If the CNC machine is scrapped with a book value of Rs 2,50,000 remaining:

The full original cost is removed from the asset account, accumulated depreciation is cleared, and the remaining book value is charged as a loss to the Profit & Loss statement.

Tip: If you recover any scrap value (for example, selling the metal for Rs 15,000 to a scrap dealer), record that amount separately as scrap sale income. This reduces the net loss on the scrapped asset.

Complete Lifecycle Walkthrough

To bring everything together, here is the full lifecycle of the CNC Vertical Milling Machine (PLM-012) from acquisition to disposal:

This sequence demonstrates how the ERP system maintains a complete, auditable history for every fixed asset from the day it enters the organization to the day it leaves.

Asset Field Reference

Depreciation Entry Field Reference

Tips & Best Practices

Tip: Run depreciation entries on a consistent schedule. Whether you choose monthly, quarterly, or annual depreciation, stick to the same frequency across all assets. Inconsistent timing makes reconciliation difficult and can raise questions during audit.

Tip: Before disposing of or scrapping an asset, always bring depreciation up to date. If you dispose of a machine in September but last ran depreciation on 31 March, you need to record six months of additional depreciation first. Skipping this step overstates the profit or understates the loss on disposal.

Tip: Maintain a physical verification schedule. At least once a year, verify that every asset in the ERP register physically exists at the recorded location. Flag discrepancies immediately. Auditors under the Companies Act are required to verify that physical assets match the register.

Tip: Use asset codes that encode the category for easy identification on the shop floor. For example: PLM for Plant & Machinery, VEH for Vehicles, FUR for Furniture, CMP for Computers. Affix labels with the asset code on the physical asset for quick reference during verification.

Warning: Insurance expiry dates must be monitored actively. A machine worth Rs 12,50,000 operating without insurance cover exposes the business to significant financial risk. Review the asset list filtered by insurance expiry date at the start of each quarter.

Quick Reference