Definition: A fixed asset is an item with a useful life greater than one reporting period, and which exceeds an entity's minimum capitalization limit. A fixed asset is not purchased with the intent of immediate resale, but rather for productive use within the entity. An inventory item cannot be considered a fixed asset, since it is purchased with the intent of either reselling it directly or incorporating it into a product that is then sold.
The following are examples of general categories of fixed assets:
- Computer equipment
- Computer software
- Furniture and fixtures
- Intangible assets
- Leasehold improvements
Fixed assets are initially recorded as assets, and are then subject to the following general types of accounting transactions:
- Periodic depreciation (for tangible assets) or amortization (for intangible assets)
- Impairment write-downs (if the value of an asset declines below its net book value)
- Disposition (once assets are disposed of)
A fixed asset appears in the financial records at its net book value, which is its original cost, minus accumulated depreciation, minus any impairment charges. Because of ongoing depreciation, the net book value of an asset is always declining.
A fixed asset does not actually have to be "fixed," in that it cannot be moved. Many fixed assets are portable enough to be routinely shifted within a company's premises, or entirely off the premises. Thus, a laptop computer could be considered a fixed asset (as long as its cost exceeds the capitalization limit).
A fixed asset is also known as Property, Plant, and Equipment.