What is a Fixed Asset? All you need to know about it

Meaning of Fixed Asset

A fixed asset is a long-term property that an enterprise acquires and utilizes in the period of its revenue and isn’t predicted that would be utilized or devoured into cash in the upcoming 1 year. An exemplary case of a fixed asset is a manufacturer’s plant resources, for instance, its hardware and substructures. The term ‘fix’ signifies that these assets will not be sold out in the existing financial bookkeeping year.

The significance of Fixed Assets

An elucidated representation of an establishment’s capital sums up to the comprehending of the financial profit and evaluation of that business concern. Information incorporating fixed assets and depreciation is additionally used by financial experts when they are thinking about whether an establishment is a non-profitable or profitable enterprise. While ascertaining the profitable of a fixed asset, the plan of action for depreciation has to be contemplated.

Types of Fixed Assets:

  • Tangible Assets: Tangible asset is an asset that has a physical existence. Tangible assets incorporate both fixed assets, such as land, buildings and machinery and current assets – inventory.
  • Intangible Assets: An intangible asset is an asset which doesn’t possess a physical existence. Brand recognition, intellectual property, goodwill and such as copyrights, trademarks, and patents are all examples of intangible assets.

Fixed Asset Formula

Net Fixed Assets = Total Fixed Assets – Accumulated Depreciation

Depreciation in Fixed Assets

Depreciation is the part of a fixed asset’s cost listed as an investment during the present accounting years. In other words, a fixed asset has a valuable long life for more than one accounting period, therefore, depreciation refers to the fraction of its value used during the current years.

Depreciation can be measured in various ways. Simplest is the Straight-line depreciation, separating the fixed asset’s cost by the number of accounting years it is expected to last.

Accounting for Fixed Asset

If your trading concern has fixed assets, sound accounting standards can fill in as a standard to perfectly depict these long cargo commodities on the bookkeeping records. Specific exchanges that affect the capital to assimilate the purchase, devaluation, revaluation, and sale of the asset. This business is important to the precision of your trades’ financial data and reports.

Fixed Assets Examples

Fixed assets are fixed in nature and cannot be easily convertible into cash. Below is the list of fixed assets.

  • Cash and cash equivalents
  • Inventory
  • Investments
  • PPE (Property, Plant, and Equipment)
  • Land
  • Buildings
  • Vehicles
  • Furniture
  • Patents
  • Stock
  • Equipment

Also Read: Tips to Study Accountancy

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