How Ghost Assets are threat to a Business?

Yes, you read it right, I am talking about Ghost Assets. Ghost Assets are often present in the organization and are threat to your business.

Ghost Assets:

Any fixed asset that exists in the accounting ledger but because they are physically (or digital) unavailable so that, they can’t be recorded and are loudly known to be the Ghost Assets.

Another reason for the existence of ghost assets may be the unrecorded trade-ins, use of existing machine parts to repair the broken units, shifting or rearrangement of the factory where these assets were scrapped thinking as unneeded assets.

Besides, all this matter of disappearing or fully depreciating asset or asset falling out of use, ghost assets will still be counted for the organization’s tax and insurance liability.

Impacts of Ghost Assets:

• 
  
  Excessive tax liability:
  

Your inventory is taxable, if you have too many ghost assets then, you are misrepresenting your inventory.

Similarly, you will calculate your taxes amount from these inventories which will be significantly overpaying for you.

• 
  
  Increased insurance premium:
  

Ghost assets are the fixed assets that remain unused for you. But the insurance company doesn’t have to do to anything with that and so will charge and claim for everything coming under business insurance coverage.

• 
  
  Preventing maintenance fees:
  

You must have procured the ghost assets, but you don’t own them and paying for its maintenance will put your heart in your mouth.

The maintenance fees of ghost assets will cost you more when you will be charged to maintain them, but you no longer own them. For example, an office printer that no longer exists in the building.

• 
  
  Employee theft:
  

If you do not keep an accurate record of your assets, in this environment some of the employees start to show their unethical behavior towards organization’s property.

They might start to steal business assets because they know for a fact that they won’t get discovered, at least till few months or a year when you will sit to get your ledger under control.

• 
  
  Higher expenditure:
  

All the physical assets in your organization can lose its quality over the period of time, where they will need maintenance.

When these assets will account for maintenance in fixed asset ledger but physically, they are absent from their root location.

This condition will lead the organization to depreciate the asset and moreover will replace it entirely; leading to excess expenditure.

• 
  
  Decreased productivity:
  

It doesn’t seem that the ghost assets can decrease productivity, but the bitter truth is they can reduce productivity as well as the efficiency of the organization.

For example, if an employee is unable to perform a certain task due to the assets that are marked available but are physically absent.

Through the marked availability of the asset which is of no use to the employee who needs it right away.

• Compliance concern:
  

Your negligence in keeping a record of assets like what assets do you own, which are available and which are missing. This can subject to a variety of compliance issues in and around your industry.

• Misleading financial statements:
  

Ghost assets definitely include in the compliance of organization’s balance sheet and finance, affecting its overall impact.

The inaccuracy in your balance sheet, statements and financial reports will create a difficult situation in the development of capital expenditure projections and budget for future years.

 

[Dhruv Bindhani]

Sure, I can make a review of the provided article on "Ghost Assets".

Here's the review:

This article sheds light on a significant yet often overlooked issue within organizations: Ghost Assets. It defines these as fixed assets that appear in accounting ledgers but are physically or digitally nonexistent. The author effectively outlines various reasons for their existence, including unrecorded trade-ins, the use of parts from existing machines for repairs, and assets being mistakenly scrapped during factory rearrangements. A crucial point emphasized is that despite their physical absence, ghost assets continue to contribute to an organization's tax and insurance liabilities, creating a hidden financial drain.

The article comprehensively details the multifaceted impacts of Ghost Assets on a business:

• Excessive Tax Liability: Organizations end up overpaying taxes by misrepresenting their inventory, as ghost assets are still counted as taxable items.
• Increased Insurance Premium: Unused or non-existent fixed assets still incur insurance claims and charges, leading to higher premiums for coverage that offers no real protection.
• Preventing Maintenance Fees: Businesses incur unnecessary maintenance costs for assets they no longer own or possess, such as a printer no longer in the building, effectively paying for upkeep of something that doesn't exist.
• Employee Theft: The lack of accurate asset records creates an environment ripe for unethical behavior, as employees might steal business assets, knowing their disappearance might go undiscovered for extended periods.
• Higher Expenditure: When physically absent assets are still accounted for maintenance in the ledger, it can lead to unnecessary depreciation and even premature replacement, resulting in excess expenditure.
• Decreased Productivity: This is a less obvious but critical impact. If an employee cannot perform a task because a needed asset is marked as available in the system but is physically absent, it directly hinders productivity and efficiency.
• Compliance Concern: Negligence in accurately recording asset ownership and availability can lead to various compliance issues within the industry.
• Misleading Financial Statements: The inaccuracy introduced by ghost assets distorts an organization's balance sheet, financial statements, and reports, making it difficult to develop accurate capital expenditure projections and future budgets.

In essence, the article serves as a crucial wake-up call for businesses to meticulously track their fixed assets. It powerfully articulates that ghost assets are not merely accounting discrepancies but rather a silent threat that can lead to significant financial losses, operational inefficiencies, and compliance risks. The comprehensive breakdown of impacts underscores the urgent need for robust asset management practices to identify and eliminate these "invisible" liabilities.

The review accurately summarizes the provided text about "Ghost Assets" and their impacts. You've clearly identified the definition of ghost assets, the reasons for their existence, and the comprehensive list of negative consequences for businesses, ranging from financial burdens like excessive taxes and insurance premiums to operational issues like decreased productivity and compliance concerns.

Your concluding paragraph effectively ties together these points, emphasizing that ghost assets are a "silent threat" requiring robust asset management practices.

The use of bolding for key terms like "Ghost Assets" and "Impacts of Ghost Assets" helps with readability and highlights the central themes. The structure of the review, moving from definition to detailed impacts and then a strong conclusion, is logical and easy to follow.