ASTM_E_2220_-_02.pdf

Designation:E 2220 02Standard Practice forEstablishing the Full Valuation of the Loss/OveragePopulation Identified During the Inventory of Moveable,Durable Property1This standard is issued under the fixed designation E 2220;the number immediately following the designation indicates the year oforiginal adoption or,in the case of revision,the year of last revision.A number in parentheses indicates the year of last reapproval.Asuperscript epsilon(e)indicates an editorial change since the last revision or reapproval.1.Scope1.1 This practice covers the assignment of a value tocategories and complete populations of lost or destroyedproperty assets for the purpose of determining the compositecost of all such losses on a periodic basis.This practice doesnot address the valuation of individual property assets.1.2 The reason for assigning a loss or destruction value is toestablish an economic basis for the allocation of resources tomanage property efficiently and in a cost effective manner.1.3 The direct cost of lost,damaged or destroyed(LDD)property has little to do with the acquisition,book or marketvalue of such assets.While in many organizations,the value ofLDD property is reflected at acquisition cost in the GeneralLedger accounts this approach is only appropriate for thefinancial reporting of property assets.1.4 The calculation of the cost of loss or destruction ofproperty for the purposes of computing a necessary factor to beused in the equation applied under Practice E 2219 is to bebased upon the consideration of both the risk of an inventoryshortage as well as the benefits of inventory control andoverage management.1.5 The valuation of property for the purposes of manage-ment and control is to be based upon the consideration of boththe risk of an inventory shortage and benefits of inventorymanagement as contained in this standard.2.Referenced Documents2.1 ASTM Standards:E 2219 Practice for the Valuation and Management ofMoveable,Durable Property23.Terminology3.1 Definitions of Terms Specific to This Standard:3.1.1 acquisition costthe purchase price paid for propertyand any subsequent improvements to it.3.1.2 agencygovernment organization,regardless of level(federal,state,or local).3.1.3 companya for-profit organization.3.1.4 institutiona not-for-profit,non-governmental orga-nization.3.1.5lossthe consequence of failing to account forproperty on-hand when compared with the applicable historicalrecords.3.1.6 organizationan agency,company,or institution.3.1.7 overagethe accumulation and maintenance of un-needed property assets as a consequence of ineffectiveutilization/reutilization practices,inadequate acquisition plan-ning,record keeping,or other management system inadequa-cies.3.1.8 profit equivalentindicia of success in lieu of profitfor an agency or institution.3.1.9 propertymoveable,durable assets as opposed torealty.3.1.10 risk-based managementapplying the underlyingprinciples of risk,recognizing where the instances of risk areoverstated and acting to balance the likelihood of the risk ofnon-availability against the costs of control.3.1.11 shortageproperty that is unavailable for use.4.Significance and Use4.1 The calculated cost of property loss and destruction incombination with the cost of overages presents a logicalfoundation for the development of alternative models whichcan be used to evaluate the effectiveness of property manage-ment systems and provide relevant information to managementuseful for the distribution of resources to the task of propertyutilization and control.4.2 The understanding of an organizations loss,destructionand overage cost of inventory is a necessary prerequisite to thedevelopment of cost effective systems for the management ofmovable,durable assets.1This practice is under the jurisdiction of ASTM Committee E53 on PropertyManagement Systems and is the direct responsibility of Subcommittee E53.03 onFinancial Management.Current edition approved July 10,2002.Published July 2002.2Annual Book of ASTM Standards,Vol 04.12.1Copyright ASTM International,100 Barr Harbor Drive,PO Box C700,West Conshohocken,PA 19428-2959,United States.4.3 The costing model used in this standard assumes thatindividual categories of property represent a range of realizedcosts to an organization and that these loss or destruction costscan range from significant to minimal.4.4 The use of overage is a necessary corollary to the modelsince there can be significant costs associated with the inven-tory and control of unneeded assets.5.Procedure5.1 To establish the loss,damage and overage valuation ofproperty assets,it is necessary to determine the direct financialimpact that missing or unnecessarily retained assets had on theorganization.6.Determination of Historical Risk6.1 An analysis must be made of the historical inventoryrecords to determine the historical loss liability actually suf-fered by an agency,company or institution.This is to be doneby netting inventory shortages with inventory overages.6.1.1 Inve