Fixed asset

A fixed asset is property 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.  Also, it is not expected to be fully consumed within one year of its purchase. 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:

  • Buildings

  • Computer equipment

  • Computer software

  • Furniture and fixtures

  • Intangible assets

  • Land

  • Leasehold improvements

  • Machinery

  • Vehicles

Fixed assets are initially recorded as assets, and are then subject to the following general types of accounting transactions:

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. However, it is possible under international financial reporting standards to revalue a fixed asset, so that its net book value can increase.

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.

Related Courses

Fixed Asset Accounting 
How to Audit Fixed Assets