What is a 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. A fixed asset appears in the accounting 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).
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Examples of Fixed Assets
There are many types of fixed assets, including buildings, computer equipment, computer software, furniture and fixtures, intangible assets, land, leasehold improvements, machinery, and vehicles.
Accounting for Fixed Assets
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)
