Fixed asset

Assets and property that cannot easily be converted into cash

Part of a series on

Accounting

* Constant purchasing power
* Historical cost
* Management
* Tax

Major types

* Audit
* Budget
* Cost
* Forensic
* Financial
* Fund
* Governmental
* Management
* Social
* Tax

Key concepts

* Accounting period
* Accrual
* Constant purchasing power
* Economic entity
* Fair value
* Going concern
* Historical cost
* Matching principle
* Materiality
* Revenue recognition
* Unit of account

Selected accounts

* Assets
* Cash
* Cost of goods sold
* Depreciation / Amortization (business)
* Equity
* Expenses
* Goodwill
* Liabilities
* Profit
* Revenue

Accounting standards

* Generally-accepted principles
* Generally-accepted auditing standards
* Convergence
* International Financial Reporting Standards
* International Standards on Auditing
* Management Accounting Principles

Financial statements

* Annual report
* Balance sheet
* Cash-flow
* Equity
* Income
* Management discussion
* Financial statement analysis

Bookkeeping

* Bank reconciliation
* Debits and credits
* Double-entry system
* FIFO and LIFO
* Journal
* Ledger / General ledger
* Trial balance

Auditing

* Financial
* Internal
* Firms
* Report
* Sarbanes–Oxley Act

People and organizations

* Accountants
* Accounting organizations
* Luca Pacioli

Development

* History
* Research
* Positive accounting
* Sarbanes–Oxley Act

Misconduct

* Creative
* Earnings management
* Error account
* Hollywood
* Off-balance-sheet
* Two sets of books

* v
* t
* e

Fixed assets (also known as long-lived assets or property, plant and equipment; PP&E) is a term used in accounting for assets and property that may not easily be converted into cash.[1] They are contrasted with current assets, such as cash, bank accounts, and short-term debts receivable. In most cases, only tangible assets are referred to as fixed.[2][3]

While IAS 16 (International Accounting Standard) does not define the term fixed asset,[4] 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.[5]

Fixed assets are of two types:

* those which are purchased with legal right of ownership (in the case of property, known as freehold assets), and
* those for which the owner has temporary ownership rights for a stated period of time (in the case of property, known as leasehold assets).

A fixed asset can also be defined as an asset not directly sold to a firm's consumers or end-users.[6]

## Non-current assets

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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 (GAAP) XBRL[7] 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.[8]

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 registers 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.[9][10]

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 and buildings, motor vehicles, furniture, office equipment, computers, fixtures and fittings, and plant and machinery.[11] These often receive a favorable tax treatment (in the form of a depreciation allowance) in contrast to short-term assets.[12]

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.[13]

## Accounting treatment

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The primary objective of a 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 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.[5][14]

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.[15]

## Depreciating a fixed asset

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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 depreciation is commonly calculated differently than depreciation for financial reporting.[16][17][18]

### Straight-line depreciation

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Straight-line depreciation is the simplest and most often used method. The straight-line depreciation is calculated by dividing the difference between assets pagal sale cost and its expected salvage value by the number of years for its expected useful life. (The salvage value may be zero, or even negative due to costs required to retire it; however, for depreciation purposes salvage value is not generally calculated at below zero.) The company will then charge the same amount to depreciation each year over that period, until the value shown for the asset has reduced from the original cost to the salvage value.[19][20]

Straight-line method:

annual depreciation expense = cost of fixed asset − residual value useful life of asset ( y e a r s ) {\displaystyle {\mbox{annual depreciation expense}}={{\mbox{cost of fixed asset}}-{\mbox{residual value}} \over {\mbox{useful life of asset}}(years)}}

## See also

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* Bentley Infrastructure 500
* Capital asset
* Depreciation
* DIRTI 5
* Fixed asset turnover
* Fixed assets management
* Fixed assets register
* Like-kind exchange
* Revaluation of fixed assets

## References

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Library resources about
Fixed asset

* * *

* Resources in your library

1. ^ Rogers, Karen (8 March 2019). "What Items Are Included in Fixed Assets?". smallbusiness.chron.com. Houston Chronicle. Retrieved 14 April 2021.
2. ^ "Current Assets vs. Fixed Assets: What's the Difference?". Investopedia. Retrieved 2025-04-23.
3. ^ Sahil, Ahuja (2014-04-19). "Difference between fixed and current assets (with examples)". Accounting Capital. Retrieved 2025-04-23.
4. ^ http://eifrs.ifrs.org/eifrs/bnstandards/en/IAS16.pdf [bare URL PDF]
5. ^ a b "IFRS - IAS 16 Property, Plant and Equipment". www.ifrs.org. Retrieved 2025-04-23.
6. ^ Sinra (2023-02-24). "9 General Categories of Fixed Assets (With Explanation)". Wikiaccounting. Retrieved 2025-04-23.
7. ^ "Taxonomy Viewer". xbrlview.fasb.org.
8. ^ "IFRS - IFRS 3 Business Combinations". www.ifrs.org. Retrieved 2025-04-23.
9. ^ "A STUDY ON FIXED ASSET MANAGEMENT WITH REFERENCE TO KESORAM" (PDF).
10. ^ "Evaluation of Fixed Assets Management".
11. ^ "What is fixed asset management". www.ibm.com. Retrieved 14 April 2021.
12. ^ "Oracle ® FLEXCUBE Universal Banking Fixed Assets User Guide". docs.oracle.com. Retrieved 2025-04-23.
13. ^ "Property, plant and equipment | ACCA Global". www.accaglobal.com. Retrieved 2025-04-23.
14. ^ "Conceptual Framework for Financial Reporting".
15. ^ "Net Book Value". Corporate Finance Institute. Retrieved 2025-04-23.
16. ^ "Depreciation: Definition and Types, With Calculation Examples". Investopedia. Retrieved 2025-04-23.
17. ^ "Depreciation Methods Template". Corporate Finance Institute. Retrieved 2025-04-23.
18. ^ CEPF®, True Tamplin, BSc. "Depreciation | Causes, Methods of Calculating, and Examples". Finance Strategists. Retrieved 2025-04-23.`{{cite web}}`: CS1 maint: multiple names: authors list (link)
19. ^ "Straight Line Depreciation". Corporate Finance Institute. Retrieved 2025-04-24.
20. ^ "Straight Line Depreciation Method | Explanation & Examples". Retrieved 2025-04-24.

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