Fixed Assets

Fixed Assets are those assets, which are acquired for relatively long periods for carrying on the business of the enterprise. Such assets are not meant for resale. For example, Land and Building, Plant and Machinery, etc. Current assets provide benefits to the organization by their exchange into cash. In the case of fixed assets, value addition arises by facilitating the process of production or trade.

All man made things have limited life. In accounting, we are concerned with the useful life of the assets. Useful life is the period for which a fixed asset could be economically used. Benefits from the fixed assets will flow to the organization throughout its useful life.

Valuation of the fixed assets is usually made on the basis of original cost. However, since the assets have the limited life the cost will be expiring with the expiration of the life. Thus, valuation of the asset is reduced proportionate to the expired life of the asset. Such expired cost is known as depreciation.

Example: Suppose a trader buys a delivery van at a cost of Rs. 50,000. Assume that the van will have to be discarded as junk at the end of five years. In this case we take a depreciation of Rs. 10,000 per year and the process of providing depreciation for each year will continue. At the end of the fifth year the valuation of the asset will be zero. The value of the assets at cost is usually referred to as gross fixed assets and the amount of depreciation to date as accumulated depreciation. Net value of the asset is usually referred to as net fixed assets.

Fixed assets normally include assets such as land, building, plant, machinery, etc. All these items, with exception of land, are depreciated. Land is not subject to depreciate and hence shown separately from other fixed assets.

What are Fixed Assets?