Ghost asset definition
/What is a Ghost Asset?
A ghost asset is any fixed asset that cannot be accounted for, because it is not physically present within the company or has been rendered unusable. Many organizations have ghost assets – and a lot of them – because they failed to remove fixed assets from the accounting records once they were sold off or otherwise disposed of. Other reasons for the existence of ghost assets are that they were part of an unrecorded trade-in with a supplier, or because parts of existing equipment were used to repair broken units, or because they were shifted to a different department without noting this change in the accounting records.
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Disadvantages of Having Ghost Assets
The presence of ghost assets represents a waste of money, because a firm is still paying taxes and insurance premiums on assets that it either no longer owns or uses. Also, the presence of these assets in the accounting records worsens a company’s return on assets ratio, because ghost assets are being included in the ratio’s denominator. Consequently, it makes sense for a business to use a periodic fixed asset physical count to identify ghost assets and prune them from the accounting records.