The base unit is the smallest asset component, and is the asset for which property records are maintained. A base unit can be an entire building, or each of its components, an entire assembly line or each of its components. When establishing a base unit, first consider two primary factors.
- Record-keeping costs. Very small base units will necessitate large numbers of asset records.
- Value of the detailed information. Value can be measured in different ways. It can be an asset's replacement cost, or the cost if the equipment breaks down due to inadequate tracking of preventive maintenance. In the case of an aircraft, engines require separate maintenance schedules from the airframe, and so should be treated as separate base units.
The ability to control an asset provides much more benefit than the cost of maintaining an additional record. However, the cost of control is not just the computer record; the primary cost is in ensuring that the record is maintained. For example, the location of a major piece of construction equipment must be reported each time it is moved. The cost of making such a report could be greater than the value of the information produced. If a company only has one or two cranes and a single operator, other means of tracking a crane's location are possible. However, for a company that has a number of pieces of equipment that must be shifted between jobs, the cost of file updating is negligible in comparison to not having equipment at the correct location when needed.
Maintaining adequate asset records for tax purposes is also necessary. Tax depreciation may be different from that required for generally accepted accounting principles. Sufficient detail must be maintained so that the tax return can be prepared from the information in the property record. Thus, in establishing a base unit, consideration of the tax rules is important.
A building might be established as a single base unit with its furnishings separately identified. However, tax depreciation will be different for the building itself than for heating and air conditioning units, as well as lighting, refrigeration, and other built-in systems.
In establishing base units, make decisions using specific criteria. The estimated life of a base unit and its components should be the same. All components of a base unit should have the same depreciation life. Tax and accounting depreciation will be different for the same base unit, but all components of a base unit should have the same tax life.
A base unit must be readily identifiable. It must be distinguishable from other similar items, and it must be readily apparent to the observer. Complex equipment may pose a difficulty in meeting this criterion. If components of a larger machine, such as an aircraft, have material values and must be controlled separately, then designate each one as a base unit.