# Gross block & Capex: Constructing the Asset Schedule

Marketopedia / Financial Modelling / Gross block & Capex: Constructing the Asset Schedule

What is Asset schedule?

Let’s now begin constructing the asset schedule for the model. As a first step, we will assemble an excel sheet. This assembly is done in a similar way to other sheets in the model.

Let’s begin to implement the groundwork; hopefully, you understand what we mean.

It is evident that I have taken the closing gross block for Year 1 and utilised it as the opening gross block for Year 2.

The closing gross block for year 2 is 310.58, indicating an increase in the company’s assets.

310.58 – 257.78

= 52.80

Therefore, year two’s CAPEX must stand at 52.80 Cr. There has not been any sale of assets as the number has gone up. This can be logged on Excel.

I’ll use the same method for the remaining years in order to compute my conclusion.

The figures here correspond to those in the balance sheet, and we have been able to distinguish the CAPEX numbers from gross block, which was not expressly stated in the balance sheet.

The goal is to reach the corporation’s net block ultimately:

Gross Block – Depreciation = Net block.

It appears straightforward, but here’s a complication.

Please have a glance at the Y2 depreciation numbers from the Balance sheet and P&L and tell me your thoughts.

The Balance Sheet of Y2 shows depreciation of 121.73 Cr, while the P&L states 24.45 Cr. What figure should you take into consideration?

You should take both into account.

Depreciation is an expense that must be reported in a company’s Profit and Loss statement. At the same time, the amount of depreciation for the current year will also be reflected in the Balance Sheet under accumulated depreciation.

Let us approach this task in an organised manner. I have structured my spreadsheet in the following manner –

Yes, we will proceed with the same principle. I’ll use year 1’s closing balance as the starting point for year 2 and then add the depreciation from the Profit & Loss account. By adding both entries together, I should get year 2’s accumulated depreciation ending balance. This number should match the amount noted in the Balance Sheet.

As the general principle states, the closing balance is 125.39Cr, yet according to the Balance sheet it’s 121.73 Cr – a discrepancy of approximately 3.66 Cr.

What causes such a discrepancy?

The discrepancy can be explained by the minor asset write-offs and adjustments that are taken into account. We handle this as a form of non-expenditure depreciation. Taking this into consideration will make the figures reconcile.

We have now calculated the gross block and accumulated depreciation, so arriving at the netblock should be quite simple.

The net block is calculated as the difference between the closing gross block figure and the closing amount for depreciation charges.

I’d suggest you refer to the netblock number on the balance sheet for comparison.

–  What are Capex projections

Once the asset schedule is in place, we can continue by forecasting.

The CAPEX projection is vital to comprehending how the company plans to manage spending in the upcoming years. It’s usually made clear in management discussion analysis, analyst reports, or business channels.

In an interview, the CFO of Bajaj Auto made it clear that CAPEX demands for the coming years will be high. According to me, this kind of insight is more beneficial than any guesswork.

You could either try to hunt it down, or you can look for an alternative source.

Discover the typical CAPEX and anticipate that the averages will persist for the next few years.

Regarding CAPEX, you can assess the company’s history and utilise that information accordingly. If the company had been going through a time of expansion and high CAPEX expenditure, you would reduce it. Contrarily, if the company has been experiencing a low CAPEX cycle, you can slowly increase spending.

It is important to remember that management is the primary choice, but if needed, these techniques can serve as a viable alternative.

In this model, we will utilise the variable method. In the past, CAPEX was quite steep; thus, I plan to gradually reduce it because most of the firm’s CAPEX cycle is complete. Additionally, I am considering that there is no disposal of assets.

Once you have the CAPEX figure, calculating the Closing gross block number is a breeze. Let’s finish this off!

With the closing gross block number at hand, we can feed it into the balance sheet.