A fixed asset, also known as long-lived assets or property, plant and equipment (PP&E), is a term used in

accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

for

asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

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 may not easily be converted into

cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...

. Fixed assets are different from current assets, such as cash or bank accounts, because the latter are

liquid asset Liquid capital or fluid capital is the part of a firm's assets that it holds as money. It includes cash balances, bank deposits, and money market investments. Since these assets provide little or no income to the firm, it will ordinarily seek to in ...

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 adopted by the International Accounting Standards Board (IASB). It concerns accounting for property, plant and equi ...

(

International Accounting Standard International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's fina ...

) 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 rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...

(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. The language is XML-based an ...

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, sometimes called a till or automated money handling system, is a mechanical or electronic device for registering and calculating transactions at a point of sale. It is usually attached to a drawer for storing cash and other ...

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, also known as dry land, ground, or earth, is the solid terrestrial surface of the planet Earth that is not submerged by the ocean or other bodies of water. It makes up 29% of Earth's surface and includes the continents and various isla ...

and

building A building, or edifice, is an enclosed structure with a roof and walls standing more or less permanently in one place, such as a house or factory (although there's also portable buildings). Buildings come in a variety of sizes, shapes, and fun ...

motor vehicle A motor vehicle, also known as motorized vehicle or automotive vehicle, is a self-propelled land vehicle, commonly wheeled, that does not operate on Track (rail transport), rails (such as trains or trams) and is used for the transportation of pe ...

furniture Furniture refers to movable objects intended to support various human activities such as seating (e.g., stools, chairs, and sofas), eating (tables), storing items, eating and/or working with an item, and sleeping (e.g., beds and hammocks). Fu ...

office equipment Office supplies are consumables and equipment regularly used in offices by businesses and other organizations, by individuals engaged in written communications, recordkeeping or bookkeeping, janitorial and cleaning, and for storage of supplies o ...

computer A computer is a machine that can be programmed to Execution (computing), carry out sequences of arithmetic or logical operations (computation) automatically. Modern digital electronic computers can perform generic sets of operations known as C ...

s, fixtures and fittings, and plant and machinery. These often receive a favorable tax treatment (in the form of a 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, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...

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, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...

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 is a term that 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 ...

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) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...

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 ...

References

{{Authority control Accounting terminology

Non-current assets

Accounting treatment

Depreciating a fixed asset

See also

References