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Fixed assets, also known as long-lived assets, tangible assets or property, plant and equipment (PP&E), is a term used in
accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compare with other ob ...
for
asset In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such a ...
s and
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
that cannot easily be converted into
cash In economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societie ...
. Fixed assets are different from
current asset In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compar ...
s, such as cash or bank accounts, because the latter are
liquid asset In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price. Liquidity involves the trade-off between the ...
s. In most cases, only tangible assets are referred to as fixed. While
IAS 16 International Accounting Standard 16 ''Property, Plant and Equipment'' or IAS 16 is an international financial reporting standard International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded compani ...
(
International Accounting Standard International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus a ...
) does not define the term "Fixed Asset", it is often colloquially considered a synonym for property, plant and equipment. According to IAS 16.6, property, plant and equipment are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and (b) are expected to be used during more than one period."
Fixed assets are one of two types: * "Freehold Assets" – assets which are purchased with legal right of ownership and used, and * "Leasehold Assets" – assets used by owner without legal right for a particular period of time. A fixed asset can also be defined as an asset not directly sold to a firm's consumers or end-users.


Non-current assets

In modern financial accounting usage, the term "fixed assets" can be ambiguous. Instead, the term "non-current assets" (used by the IFRS and U.S.
Generally Accepted Accounting Principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
(GAAP)
XBRL XBRL (eXtensible Business Reporting Language) is a freely available and global framework for exchanging business information. XBRL allows the expression of semantic meaning commonly required in business reporting Business reporting or enterpr ...
reporting taxonomies) is preferred when referring to assets that will not be liquidated in the current fiscal period. Specific non-current assets (Property, plant and equipment, Investment property, Goodwill, Intangible assets other than goodwill, etc.) should be referred to by name. A baking firm's current assets would be its inventory (flour, yeast, etc.), the value of sales owed to the firm from credit extended (i.e. debtors or accounts receivable), and cash held in the bank. Its non-current assets would be the oven used to bake bread, motor vehicles used to transport deliveries, and
cash register A cash register or till or automated money handling system is a mechanical or electronic device for registering and calculating transactions at a point of sale The point of sale (POS) or point of purchase (POP) is the time and place where ...
s used to handle cash payments. While these non-current assets have value, they are not directly sold to consumers and cannot be easily converted to cash. Non-current (fixed) assets are items of value that the organization has bought and will use for an extended period of time, typically including
land Land is the solid surface of Earth that is not permanently submerged in water. Most but not all land is situated at elevations above sea level (variable over geologic time frames) and consists mainly of Earth's crust, crustal components such a ...
and
building A building, or edifice, is a structure with a roof and walls standing more or less permanently in one place, such as a house or factory. Buildings come in a variety of sizes, shapes, and functions, and have been adapted throughout history for a ...

building
s,
motor vehicle A motor vehicle, also known as motorized vehicle or automotive vehicle, is a self-propelled vehicle A vehicle (from la, vehiculum) is a machine that transports people or cargo. Vehicles include wagons, bicycles, motor vehicles (motorcycles ...
s,
furniture Furniture refers to movable objects intended to support various human activities such as seating (e.g., chairs, stools, and sofas), eating (table (furniture), tables), and sleeping (e.g., beds). Furniture is also used to hold objects at a con ...

furniture
,
office equipment Office supplies are consumables Consumables (also known as consumable goods, non-durable goods, or soft goods) are goods that are intended to be consumed. People have, for example, always consumed food and water. Consumables are in contrast to ...
,
computer A computer is a machine that can be programmed to Execution (computing), carry out sequences of arithmetic or logical operations automatically. Modern computers can perform generic sets of operations known as Computer program, programs. These ...

computer
s, fixtures and fittings, and plant and
machinery A machine is any physical system with ordered structural and functional properties. It may represent human-made or naturally occurring device molecular machine A molecular machine, nanite, or nanomachine is a molecular component that produc ...

machinery
. These often receive a favorable tax treatment (in the form of a
depreciation allowance
depreciation allowance
) in contrast to short-term assets. Note that the cost of a fixed asset is its purchase price including import duties, after subtracting any deductible trade discounts and rebates. It also includes the cost of transporting and installing the asset on-site and an estimate of the cost of dismantling and removal once it is no longer needed due to obsolescence or irreparable breakdown.


Accounting treatment

The primary objective of a
business entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by ...

business entity
is to be profitable and increase the wealth of its owners. To do so, management must exercise due care and diligence by matching the expenses for a given period with the revenues of the same period. The period of use of
revenue In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to comp ...
generating assets is usually more than a year, i.e. long term. To accurately determine the ''Net Income'' (profit) for a period, incremental depreciation of the total value of the asset must be charged against the revenue of the same period. Doing so is necessary for determining ''Net Revenue''. ''Net book value'' of an asset is the difference between the historical cost of that asset and its associated depreciation. Under most financial accounting standards (Standard Accounting Statement (SAS) 3 and IAS 16), the value of fixed assets are recorded and reported at net book value. Also, carrying assets at net book value is the most meaningful way to capture asset values for the owners of the business and potential investors.


Depreciating a fixed asset

Depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

Depreciation
is the expense generated by using an asset. It is the wear and tear and thus diminution in the historical value due to usage. It is also the cost of the asset less any salvage value over its estimated useful life. A fixed asset can be depreciated using the straight line method which is the most common form of depreciation.
Tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity In law Law is a system A system is a group of Interaction, interacting or interrelated elements that act accord ...
depreciation is commonly calculated differently than depreciation for
financial reporting Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
.


See also

* Bentley Infrastructure 500 *
Capital asset A capital asset is defined to include property of any kind held by an assessee, whether connected with their business or profession or not connected with their business or profession. It includes all kinds of property, movable or immovable, tangible ...
*
Depreciation In accountancy, depreciation refers to two aspects of the same concept: first, the actual decrease of fair value of an asset, such as the decrease in value of factory equipment each year as it is used and wear, and second, the allocation in a ...

Depreciation
*
DIRTI 5 In accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, which can be used to compare ...
* Fixed asset turnover *
Fixed assets managementFixed assets management is an accounting Accounting or Accountancy is the measurement ' Measurement is the number, numerical quantification (science), quantification of the variable and attribute (research), attributes of an object or event, whi ...
*
Fixed assets register A fixed asset register (FAR) is nothing more than a list of fixed assets Fixed assets, also known as long-lived assets, tangible assets or property, plant and equipment (PP&E), is a term used in accounting for assets and property that cannot eas ...
*
Like-kind exchange A like-kind exchange under United States tax law The United States, United States of America has separate Federal government of the United States, federal, U.S. state, state, and Local government in the United States, local governments with taxes ...
*
Revaluation of fixed assets In finance Finance is a term for the management, creation, and study of money In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted with the beggar whose legs and arms were amputated, in ...


References

{{Authority control Accounting terminology