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College of Finance, Management and Development Department of Public Financial Management and Accounting

Title: Assessment of Fixed Asset Management Practice: The Case of Nib International Bank

By: Yirgalem Tsegaye

A Thesis Submitted to the Department of Public Finance Management and Accounting, College of Finance, Management and Development, Ethiopian Civil Service University, Partial Fulfillment of the Requirements for the Degree of Master Art of Public Financial Management

Advisor: Tadewos Mentta (Assistant Professor)

August 2020 Addis Ababa, Ethiopia

Declaration I hereby declare that, this thesis is my original work and has not been presented partially or in full for the award of degree in any other university. All the sources used in this thesis have been duly acknowledged.

Name of Author: Yirgalem Tsegaye Signature ____________ Date ________________

This thesis has been submitted for examination with my approval as a university supervisor. Name of Advisor: Tadewos Mentta (Assistant Professor) Signature _____________ Date _________________

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Approval Certificate ETHIOPIAN CIVIL SERVICE UNIVERSITY

College of Finance, Management and Development Department of Public Financial Management and Accounting

Title: Assessment of Fixed Asset Management Practice: The Case of Nib International Bank By: Yirgalem Tsegaye

Approved by Board of Examiners

-------------------------------------- ---------------------------------- ------------------------------Chairman Signature Date -------------------------------------- ---------------------------------- ------------------------------Internal Examiner Signature Date

-------------------------------------- ---------------------------------- ------------------------------External Examiner Signature Date -------------------------------------- ---------------------------------- ------------------------------Head of Department Signature Date

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Acknowledgement I sincerely thank my advisor Tadewos Mentta (Assistant Professor) for his constructive comments, valuable suggestions and good guidance though out the study. My deepest appreciation goes to my families who have been encouraging me one way or another that contributed to my achievement. My very special thanks go to my wife W/ro Rgbe Ameha for her enduring love, friendship, her unrestricted and continued support and encouragement.

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Table of Contents Content

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Declaration............................................................................................................................i Approval Certificate............................................................................................................ii Acknowledgement..............................................................................................................iii Table of Contents................................................................................................................iv List of Tables.....................................................................................................................vii Abstract............................................................................................................................viii CHAPTER ONE..................................................................................................................1 INRODUCTION..................................................................................................................1 1.1 Background of the Study............................................................................................1 1.2 Statement of the Problem...........................................................................................2 1.3 Research Questions....................................................................................................4 1.4 Objectives of the Research.........................................................................................4 1.4.1 General Objective................................................................................................4 1.4.1 Specific Objectives..............................................................................................4 1.5 Significant of the Study..............................................................................................4 1.6 Scope of the Study.....................................................................................................5 1.7 Limitation of the Study..............................................................................................5 1.8 Organization of the Study..........................................................................................5 CHAPTER TWO.................................................................................................................6 LITERATURE REVIEW.....................................................................................................6 2.1 Definition of Fixed Asset...........................................................................................6 2.2 Fixed Asset Recognition............................................................................................6 2.3 Nature of Plant Assets................................................................................................7 2.4 Accounting for Plant Assets.......................................................................................8 2.5 Acquisition of Fixed Assets........................................................................................8 2.6 Recording Fixed Assets..............................................................................................9 2.7 Depreciation.............................................................................................................11 2.7.1 Types of Depreciation........................................................................................11 iv

2.7.2 Factors in the Estimation of Periodic Depreciation...........................................12 2.8 Asset Disposals........................................................................................................14 2.9 Fixed Asset Maintenance and Repair.......................................................................15 2.10 Asset Management.................................................................................................16 2.10.1 Benefit of Asset Management.........................................................................17 2.10.2 Asset Management Elements...........................................................................19 2.10.2.1 Current State of Assets/ Asset Inventory and Condition Assessment.......20 2.10.2.2 Level of Service........................................................................................21 2.10.2.3 Critical Asset.............................................................................................22 2.10.2.4 Minimum Life Cycle Cost........................................................................23 2.10.2.5 Long Term Funding plan..........................................................................23 2.11 Fixed Assets Management Plan and Implementation............................................24 2.12 Fixed Assets Management Applications................................................................26 2.13 Monitor and Evaluate the Fixed Asset Management Process................................26 2.14 Knowledge about Fixed Asset Management..........................................................27 2.15 Asset Management Principles................................................................................27 2.16 Fixed Asset Policies...............................................................................................28 CHAPTER THREE...........................................................................................................30 RESEARCH METHOD....................................................................................................30 3.1 Research Design.......................................................................................................30 3.2 Population of the Study............................................................................................30 3.3 Sample Size and Techniques....................................................................................31 3.4 Tools of Data Collection..........................................................................................31 3.5 Data Analysis...........................................................................................................31 3.6 Validity and Reliability............................................................................................32 3.7 Pre-testing................................................................................................................33 3.8 Ethical Consideration...............................................................................................33 CHAPTER FOUR.............................................................................................................34 DATA ANALYSIS AND INTERPRETATION.................................................................34 4.1 Participant Profile....................................................................................................34 4.2 Reliability Test.........................................................................................................35 v

4.3 Descriptive Analysis the Study Questions...............................................................36 CHAPTER FIVE...............................................................................................................44 SUMMARY, CONCLUSION AND RECOMMENDATIONS.........................................44 5.1 SUMMARY.............................................................................................................44 5.2 CONCLUSION........................................................................................................46 5.3 RECOMMENDATIONS.........................................................................................46 References..........................................................................................................................48 Appendix

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List of Tables Table 4.1: Respondents Profile Table 4.2: Reliability Analysis Score Table 4.3.1: Descriptive of Maintenance and Safeguarding of Plant Assets Table 4.3.2: Descriptive of Fixed Asset Recording Table 4.3.3: Descriptive of Asset Management Software Application Table 4.3.4: Descriptive of Employee Understanding and Knowledge on Fixed Asset Management Table 4.3.5: Descriptive of Asset Management Policy Table 4.3.6: Descriptive of Long Term Asset Management Funding Table 4.3.7: Description of Disposal Asset Management Table 4.3.8: Description of Depreciated Asset Management

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Abstract The main objective of this study was to investigate the assessing fixed asset management practice in NIB bank S.C in Addis Ababa, Ethiopia. The study adopted quantitative approach and employed on descriptive survey design. Total population of the study was 73 fixed asset staff employee in NIB bank S.C and 49 staff were directly participated in fixed asset management committee and all of them were selected purposively because of small in number. Questionnaires (maintenance and safeguarding of plant assets, asset management software application, employees’ understanding and knowledge on fixed asset management, asset management policy, and disposal asset management, recording fixed asset, long term asset management funding, and depreciated asset management) were used to gather data from procurement staff, finance and accounting staff, general staff, disposal committee, and administration staff in NIB Share Company. By using SPSS software version 26, descriptive statistical was used for data analysis. The findings show that maintenance and safeguarding of plant assets, asset management software application, employee understanding and knowledge on fixed asset management asset management policy, and disposal asset management were poor practice and hinder of fixed asset management in NIB bank S.C. Alongside, fixed asset recording, long term asset management funding, and depreciated asset management were strongly practice in the study area. Based on the analysis and interpretation, conclusions had made. Finally, recommendation had drawn that assumed to be useful to solve the existing problems of the fixed asset management practice in NIB sharing company.

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CHAPTER ONE INRODUCTION This chapter is presented background of the study, statement of the problem, objectives of the study, research questions, scope of the study, significance of the study, and limitation of the study and structure of the study.

1.1 Background of the Study Assets management is a key discipline in a modern economy: company manages their assets to maintain the standard of living after retirement, to buy property later, or because a sovereign wealth fund does not want to lose the assets for the future public use. Assets management is a process of building, distributing, and maintaining assets throughout the life-cycle (Vanini, 2020). Alongside, asset management is a widely accepted industry practice through which capital assets are inventoried, monitored, and managed over time to ensure the longevity and sustained viability of the assets as components of an effectively functioning system (NJEIFP, n.d). Since fixed assets playing dominant role in total business the firms has realized the effective utilization of fixed assets (Nagaraju, 2018). Therefore, many companies provide better service and to be more efficient, organizations are always acquiring more fixed assets. Every company and/or organization in today's economy needs to keep up with the ever changing technology to contribute to meeting market expectations. Better and improved fixed assets can make organizations more valuable because of their use and the benefits that these assets provide (Baez, 2004). Baez stated some example of firms that apply asset management like: United States, as in the Dominican Republic, universities such as Pontificia Universidad Catolica Madre Maestra (PUCMM) are required to report depreciation on fixed assets, and for that reason, these institutions have tried to manage this type of property in the best possible manner (Ibid). According to Nagaraju. (2018) noted that fixed asset management can lead to a substantial tax savings in depreciation deductions; poor fixed asset practices can threaten the accuracy of financial reports, causing re-reporting and negatively impacting the 1

bottom line. Establishing the highest standards of depreciation accuracy and best practices in fixed asset management will pay off in savings and efficiency (Ibid). The existing of fixed assets management help to the manager could make the immediate decision to repair the management process (Atiko, Febrian & Hendrawan, 2017). Similarly, Baez (2004) stated that having control over their fixed and controlled assets, an institution can increase efficiency and reduce costs associated with the mismanagement of fixed assets (excess, lost, theft, misuse of assets, etc.). Globally fixed asset management industry has finally returned to a growth to achieve the goal of the specific organization (William, Buckhorn, & Mayor, 2008). Due to the fact to maintain the effective utilization of fixed assets (Horn, 2012) claimed that a good system of internal control over fixed asset will help to detect accidental mistake that may result in the preparation of inaccurate and misleading financial information. Therefore, The continuing fast growth of fixed asset management solutions and specification confirms a structural and shift in all governmental and non-governmental organization (Horn, 2012).

1.2 Statement of the Problem Fixed Assets plays very important role in relating company’s objectives the firms. These fixed assets are not convertible or not liquid able over a period of time the total owner funds and long term liabilities are invested in fixed assets (Atiko et al., 2017). Similarly, Nagaraju (2018) noted that since fixed assets playing dominant role in total business the firms has realized the effective utilization of fixed assets. Therefore, fixed asset management is very important to understand the analyzing and properly utilized Fixed Assets effects long term sustainability of the firms which may affect liquidity and solvency and profitability positions of the company (Vanini, 2020). Similarly, fixed asset plays an important role in the organization’s objectives; these fixed assets are not convertible over a period of time. If fixed assets are idle and not utilized properly it affects the long term sustainability of the service delivery to customers (Baez, 2004). According to Faussett, (2013) described that improper authorization of fixed assets, improper installation and disposal of fixed assets and low physical control of fixed assets 2

may also result in business failure and hence it may hinder the organization’s long run success. The ineffective utilization of fixed assets further contributes to the above stated material problems of capital assets. On the other hand, banking industry serves as the backbone of the financial sector that accumulates saving from surplus economic units in the form of deposits and provides it to deficit economic units in the form of advances. Banking industry provides support to the economy in general and industries in particular in the time of recessions and economic crisis (Vossen, 2010). A portion of fixed asset reduced by use is converted into cash though charging depreciation. For correct measurement of income proper measurement of depreciation is essential, as depreciation constitutes a part of the total cost of production. Trend analysis and Ratio analysis are the techniques used in analysis of Fixed Assets Management (Brady, 2001). Therefore, effective implementation of advanced asset management allows banks to hedge the risk and to maximize Profitability in today’s highly competitive markets for banking services (Zopounidis, 2001). Since fixed assets playing dominant role in total business the firms has realized the effective utilization of fixed assets. Then, fixed asset management is very much important to understand the analyzing and properly utilized fixed assets effects long term sustainability of the firms which may affect liquidity and solvency and profitability positions of the company (Nagaraju, 2018). The idle of fixed assets lead a great in financial cost and intangible coat associate to it. So there is need for the companies to evaluate fixed assets performance analysis time to time by comparing with previous performance, Comparison with similar company and comparison with industry standards. So the title of the project is analysis on Fixed Assets Management (ibid). Ethiopian banking industries has become competitive and have been forced to effectively manage their asset to mitigate various risks that arise due to mismatch between their assets and liabilities. This competition in banking industry has generated a greater concern to manage the entire activities of bank in order to prevent any possible risks that may occur, Generally Proper management of assets ensures a smooth and efficient

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functioning of the banking sector in a manner that it accommodates changes in the external environment (Angelopoulos & Mourdoukoutas, 2001). Hence, the study would generally aim to assess fixed asset management and practice in NIB to answer that the sectors were acquired and managed their fixed assets based on planned, economical and modern utilizations.

1.3 Research Questions To address the problem related with fixed asset management, it is important to pose the following questions and the study tried answers these basic questions i. What is the practices of fixed assets recorded in NIB ...