Depreciation reduces the book value of an asset over its useful life.

The FA Asset Management System contains standard depreciation rates for all asset categories. The depreciation rate indicates the estimated useful life of an asset.

Example: 
A depreciation rate of 20% means the estimated useful life of the asset is 5 years.

Residual value is set to ISK 0 by default.

Changes to Standard Values

Managers of each institution are responsible for updating the standard values in the FA Asset Management System if they estimate a different useful life from the one registered in the system.

The institution must also register a residual value if it is expected to be higher than ISK 0.

Information about standard values and instructions for making changes are available on the Financial Management Authority website.

Under the Public Finance Act (123/2015), government entities may sell movable assets and use the proceeds to replace equipment and machinery.

An institution may originally receive an investment contribution to purchase an asset. The contribution is recognised as income against depreciation. If the asset is later sold, the proceeds from the sale may be used for reinvestment.

Active asset numbers in the FA Asset Management System must be reviewed regularly.

Assets must be removed from the asset register when they are no longer in use.

Special attention should be given to assets that:

• have a book value of ISK 0

• are no longer in use

If an asset has a book value of ISK 0 and is still in use, the asset number does not need to be disposed of.

An asset is capitalised when an institution purchases an asset that will be used for longer than one accounting period. Investment contributions in the Budget Act are provided to institutions to purchase:

• fixed assets

• intangible assets

Under the Public Finance Act, an asset register must be maintained. FA Asset Management System The FA Asset Management System is part of ORRA and is linked to the general ledger.

The system manages information on assets owned by government entities and provides information about them.

Assets are recorded under account types beginning with 18.