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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Fixed Asset Accounting

How to Audit Fixed Assets

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)

Presentation of Fixed Assets

Fixed assets appear on the balance sheet, where they are classified after current assets, as long-term assets. This line item is paired with the accumulated depreciation line item, resulting in a net fixed assets figure. A sample presentation of the assets section of a balance sheet appears in the following exhibit, with the positioning of the fixed assets and accumulated depreciation line items highlighted.

Is Inventory a Fixed Asset?

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.