A fixed asset, also known as a non-current asset or a long-term asset, is a tangible or intangible resource that a company owns and uses in its operations to generate revenue over an extended period of time, typically more than one year. These assets are not intended for sale in the ordinary course of business
and are expected to provide economic benefits to the company beyond the current accounting
Tangible fixed assets include physical assets that can be seen, touched, and quantified. Examples of tangible fixed assets include land, buildings, machinery, vehicles, furniture, and equipment. These assets are typically used in the production or delivery of goods and services and are essential for a company's day-to-day operations. Tangible fixed assets are recorded at their historical cost, which includes the purchase price, transportation costs, installation costs, and any other costs directly attributable to bringing the asset into its working condition.
Intangible fixed assets, on the other hand, lack physical substance but still hold significant value for a company. Examples of intangible fixed assets include patents, copyrights, trademarks, brand
names, software licenses, customer lists, and goodwill
. These assets often result from past transactions or events and provide exclusive rights or competitive advantages to the company. Intangible fixed assets are initially recognized at their acquisition
cost, which includes purchase price, legal fees, registration costs, and any other directly attributable costs.
Fixed assets play a crucial role in a company's ability to generate revenue and achieve its strategic objectives. They contribute to the production process, enhance operational efficiency, support growth initiatives, and enable companies to deliver high-quality products and services. Fixed assets also have a significant impact on a company's financial statements.
On the balance sheet
, fixed assets are reported at their historical cost less accumulated depreciation
(for tangible assets) or amortization (for intangible assets). Accumulated depreciation or amortization represents the systematic allocation of the asset's cost over its estimated useful life. This allocation recognizes the consumption of the asset's economic benefits over time and reflects its diminishing value due to wear and tear, obsolescence, or technological advancements.
Fixed assets are subject to periodic impairment
tests to ensure their carrying value does not exceed their recoverable amount. If the recoverable amount is lower than the carrying value, an impairment loss is recognized, reducing the asset's value on the balance sheet. Impairment losses are recorded as expenses in the income statement
and can have a significant impact on a company's profitability.
In summary, fixed assets are long-term resources that provide economic benefits to a company beyond the current accounting period. They encompass both tangible and intangible assets and are essential for a company's operations, growth, and competitive advantage
. Proper management and accounting for fixed assets are crucial to accurately reflect their value, ensure compliance with accounting standards, and make informed business decisions.