Zombie asset definition
/What is a Zombie Asset?
Zombie assets are fixed assets that are on the premises, but which have not been recorded in the fixed asset register. There are several ways in which a zombie asset can appear. Consider the following alternatives:
An employee has convinced a supplier to bill the company in several installments for an acquired asset, where each invoice is somewhat below the company’s capitalization limit. This is done in order to avoid the company’s approval policies for asset purchases. The result is an asset that was charged to expense, and so never appears in the fixed asset register.
An asset was supposed to be given to a supplier as part of a trade-in, but – since the asset was worthless – the supplier never retrieved it. As a result, the accounting department deleted the asset from the company records as part of the trade-in transaction, even though it is still present.
An asset was built on the premises, perhaps using the parts from one or more older machines. The source machines are still in the accounting records, but not the newly-constructed machine.
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Problems with Zombie Assets
There are several problems with these assets. First, it is not clear whether they have been (or should be) depreciated. Second, there is no clear indicator that the assets have reached the end of their useful lives, and so should be dispositioned. And finally, since zombie assets are not in the fixed asset register, they are not covered by the company’s property insurance, and so there will be no compensation by the insurer if these assets are destroyed. To remediate these problems, one should record all zombie assets in the fixed asset register (possibly with a carrying amount of zero, if no purchase records are available). The down side of doing so is that recording these assets could incrementally increase the amount of property taxes paid by the company.