LLDIKTI Region XIII discusses auctions as an alternative for disposing of State-Owned Property (BMN), not as a rule that applies to all company assets. In companies, unproductive items can still incur storage and maintenance costs even when the company has not documented its disposal decision. Orderly asset disposal procedures help connect operational reasons, approvals, and final accounting entries without automatically applying BMN provisions.
Problems usually arise when the user department considers the work complete after removing an item from the workspace, but the finance department has not received evidence of its disposal. Companies therefore need to manage disposal as a sequence of decisions with clear responsibilities and completion requirements, rather than simply changing a label on the asset list.
When to consider an asset for disposal
Signs that an asset’s benefits are declining
An unproductive asset does not necessarily need to be disposed of immediately. The initial assessment should cover its technical condition, any remaining benefits, the needs of other departments, and the costs of repairs and continued use.
For example, a packaging machine that frequently stops may still be worth repairing if spare parts are available and the company still needs its capacity. Conversely, a company may consider disposing of equipment that no longer suits its production process after reviewing other options for its use.
An asset’s age and book value provide supporting information for the assessment. Book value is the recorded value after accounting for depreciation and any relevant impairment. An asset with a zero book value may still be usable, while an asset that still has a book value may need to be evaluated for disposal.
The risks of delaying a decision
Indefinite delays can increase safekeeping costs, leave responsibility for items unclear, or result in components going missing before disposal is approved. Set a review date and designate the party responsible for safeguarding the items while the company processes the proposal.
Separate decisions about how an item will be used from its accounting assessment. An item that is temporarily unused does not automatically qualify for derecognition, which means removing an asset from the accounting records in accordance with applicable policies and standards.
Establish the basis for the decision and the approval workflow
Reasons for disposal and supporting evidence
The proposal should clearly identify the asset and explain why repair, reuse, or transfer is not a suitable option. The proposer needs to support reasons such as damage or obsolescence with verifiable explanations, rather than relying solely on the opinion of the asset custodian.
- Asset identification: register number, type, serial number if available, and responsible department.
- Technical inspection results, photographs of the condition, and inspection date.
- History of malfunctions and relevant estimated repair costs.
- Comparison of options: repair, reuse, sale, or destruction.
- Carrying amount, proposed disposal method, and implementation risks.
Use a single proposal number to link all supporting documents. If the proposer submits several assets at once, the attachment needs to include details of each item so that a decision on one asset is not assumed to apply to the entire group.
The roles of reviewers and approvers
Segregation of duties helps prevent the proposer from deciding on, carrying out, and closing out the disposal process alone. The user department explains operational needs, the technical reviewer verifies the item’s condition, and the finance department assesses the impact on accounting records.
Approvers follow the organization’s allocation of authority, including value thresholds and permitted disposal methods. Small organizations can address staffing limitations by asking another officer to conduct an independent review and check the evidence after implementation.
The approval record needs to include the approver’s name or identification, the date, the decision, and its conditions. If an officer gives approval through a system or email, retain that record together with the approved version of the proposal.
Complete status changes and documentation
Updating the asset register and documents
An asset register is a master list containing asset identification and management information. Use clear process statuses, such as proposed, approved for disposal, and completed, with definitions established in company policy.
Approval for disposal is not evidence that disposal has taken place. Removal from the register also differs from physical destruction, because a company may sell an asset or hand it over through another permitted method.
When updating the status, staff should retain previous documents and references to decisions rather than delete the entire history. This principle also applies to managing asset changes without losing their history and helps companies trace the process after an asset has been disposed of.
Handling disposal outcomes
For example, the production department proposes disposing of a machine after a reviewer determines that repairs are not viable based on its condition and estimated costs. An authorized officer approves the sale, and the party carrying it out documents the handover. The finance department then checks evidence of receipt of funds and determines the appropriate accounting entries.
Staff prepare the final records based on the date of the event supported by documents, rather than automatically using the proposal or approval date. Keep formal records of the proceedings, transaction documents, proof of payment, and journal entry references in the same file, or connect them through properly managed document links.
In Indonesia, companies need to check the accounting and tax treatment based on the standards they use, the type of transaction, and the provisions applicable to the company. For data storage devices or items requiring special handling, include evidence of data protection and handling in accordance with relevant obligations.
Prevent errors and rework
Checks before making a decision
Conduct a brief check before submitting the proposal to the approver. The purpose is not to add forms, but to ensure that authorized parties make decisions based on the correct items and evidence.
- The identification in the proposal matches the item and the register.
- The reason for disposal is supported by traceable inspection results.
- The proposer has assessed options for use and recorded the conclusions.
- The approver has the appropriate authority.
- The proposal specifies the disposal method, the party responsible for carrying it out, and the evidence required for completion.
Errors to avoid
Avoid disposing of items first and requesting approval afterward. If an urgent situation requires protective action, document the circumstances and follow the organization’s established exception procedures, without treating them as disposal approval.
After implementation, reconcile the asset’s identification, the approved disposal method, evidence of disposal, receipt of funds if any, and its final status. If the disposal method changes from sale to destruction, the authorized party should review and approve the change before it is carried out.
Incomplete files need to remain open, with a clearly designated responsible party and a deadline for follow-up. Marking a process as complete simply because an item is no longer on-site will make subsequent reviews more difficult.
Make decisions easy to trace
Consistent asset disposal procedures connect the basis for a decision, authority, implementation, and final accounting entries. To check completeness, ensure that a single file allows a reviewer to identify the item disposed of, the reason for disposal, the approving party, and evidence of completion without relying on verbal explanations.
Orderly documentation supports internal reviews, but does not guarantee a particular audit outcome. A policy that sets out file closure requirements and the handling of exceptions provides a clearer working framework for everyone involved.
Review one recent disposal file to identify improvements that align with your organization’s policies.
Learn how Fisetra supports asset control at fisetra.com.