The main objective of any organisation is generating profit and for that a company needs assets. Assets are basically divided into two types- fixed assets and current assets. In this article we are limiting our discussion to fixed assets.
Fixed Asset
A fixed asset is a tangible piece of property that is owned and used by a firm or company in the production. The use of such asset generates income for the firm. It is a long- term asset.
Fixed assets generally include items such as land , machinery, buildings, furniture, computers, office equipment, fixtures and fittings. Sometimes we collectively refer fixed assets as a ‘Plant’.
Note that the fixed asset is not consumed or converted into cash before a year.
Depreciation of fixed assets
The initial cost less the residual value is called the depreciation of the fixed asset. The fixed assets are depreciated over their useful lives. Remember that Land is the only fixed asset whose value is not depreciated.
They are also included in the balance sheet at their initial cost until they are sold or replaced. They are recorded on the balance sheet at their residual value.
Fixed asset is recorded in the balance sheet as an expense as it reduces the value of a company’s total holdings.
