Cream butter or margarine in mixer bowl at medium speed 1 to 3 minutes or until light and fluffy.
Sift together powdered sugar, salt, and milk; add to creamed butter or margarine.
Add vanilla while mixing at low speed; add just enough water to obtain a spreading consistency. Scrape down bowl. Beat at medium speed 3 to 5 minutes or until mixture is light and well blended. Fold in coconut.
Spread immediately on cooled cakes. Sprinkle additional coconut evenly over each frosted cake.