While calculating the actual business worth, you must have gone through the term Fixed Assets, and now, you must be intrigued about this term!
Then you are not alone in this as many others want to have the answer to the same question when their financial year is about to end as well. Fixed assets are nothing but those expenditures of a company that will generate income for a long time in the future.
Now is your chance to gather all the information that you can about these fixed assets and we are definitely going to help you in that case for sure. Some of the best examples are land, furniture, buildings, office equipment, machinery, and so many other things like that.
So, as it seems obvious with these examples, long term assets of a business that are non-current and used for the manufacturing of products and services are Fixed Assets.
The businesses use them for channelizing different operations and making money.
Hence, there is simply not a single speck of doubt about the fact that fixed assets hold great importance when someone is evaluating the business of theirs.
Here, we are going to provide you with some of the most important pieces of information so that you can have an idea of what it means for the business.
So, without wasting any more of the precious time that you are giving to us, we would like to get into the article right here.
What Is A Fixed Asset?
Before we get into the important details concerning the subject of discussion, it is really important to know one thing for sure. You need to know all that you can about the definition of fixed assets and that is exactly what we are going to provide you right here.
The fixed assets can be defined as something which is a part of certain property for a long duration of time, and this is something which is the property of a company.
Fixed assets can be utilized in the revenue generation, and it is not anticipated that it would be converted into some cash in a single year. Do you not understand what we are talking about?
Well, a very common case when we have to discuss is that there is a particular producer’s plant resource that has some hardware and structure. These would be indicated as the fixed asset because these items cannot be sold in the current year.
We are talking about here generally incorporate the properties which the organization will not be willing to sell to the clients and the customers.
We have already provided examples of the fixed assets, so we assume that you have already understood the point that we are trying to make it here.
How Do Fixed Assets Work?
The balance sheet of the company is the place where there will be some information about the assets, liabilities, along with the equity of the shareholder as well. The assets can be divided into current assets and non-current assets.
There is a difference between these two, and it is found in the useful lives that these two have. So, it is very easy to spot which one is which.
#1. Current Assets
The current assets are the liquid assets that can be easily converted into cash for the business in one year or even less.
#2. Non-Current Assets
The non-current assets are the assets and the property options owned by the company, which cannot be converted into cash within the given period of one year.
There are many different types of categories that come under the non-current and the current assets about which we shall talk some other time. The main point of interest here is the fixed asset, and that is exactly what we are going to focus on.
A fixed asset can be defined as a noncurrent asset that is bought to make sure that the production, as well as the supply of the services and the goods, happens without any hassle to the third parties who are willing to buy these things.
The company will also be able to use these products and services for their benefit. Also, the company can choose the rent these products and services depending on the situation right here.
Now, what would the term fixed mean in this topic?
To be honest, it denotes that the asset in question here will not be sold up or used in the accounting year, which is the period for which it is taken.
Fixed assets can be in the physical form, and that is always reported on the balance sheet as plant, property, or the equipment. So, you will easily be able to identify the fixed asset in the balance sheet, and that is one of the most important things for sure.
When any particular company disposes or acquires the fixed asset, then it will be recorded in the statement of cash flow right under the cash flow from the investing activities. The purchasing action of the fixed asset will represent the cash flow out of the company, and the sale is the cash inflow.
There are many cases where the asset’s value falls below the book value; then the asset will be subjected to the impairment write-down.
So, that would mean that the recorded value on the company’s balance sheet will be adjusted down to reflect the overvalue of the asset when compared to the market value of the asset.
After the fixed asset has reached the ending point of the useful life that it had, it would be disposed off, and the company will be able to sell the asset for the salvage value that it has left.
The salvage value denotes the value of the asset, which is estimated when it is broken down as well as it is sold to the party in parts. There might be some cases where the asset becomes a bit obsolete, and there is no particular market for it. Then the asset has to be disposed of without any particular payment as well.
Classification can be done into two different categories, and we are going to explain it to you right here so that you can have a better idea of the concept that we are trying to show you right here.
#1. Tangible Assets
The tangible assets will include things such as hardware, buildings, vehicles, furniture, and different types of equipment. The tangible resources are the things that the business would need to have success.
To decide the value of these assets, one needs to find out the value with which they bought the asset or rented it and then apply all the important depreciation formulas and strategies to find out the value.
There are certain examples of fixed assets, which include the structures and the lands, and these are the assets that often tend not to depreciate and appreciate in the long tenure.
So, it is important that you always keep this factor in mind when you are creating the balance sheet.
#2. Intangible Assets
The intangible assets are the ones that can incorporate the goodwill, trademarked or registered names, phone numbers, licenses, websites, or any form of innovation which the company can plan to sell at some point in time.
Fixed Assets vs. Current Assets
We all know that the fixed assets and the current assets always tend to appear on the balance sheet and the current assets are the ones which would be converted into some cash for the company in the given accounting year which is just one year or even less.
However, there is a difference between these, and it is this that the assets are the ones that are going to be used by the company for a longer duration of time. Sometimes the period stretches over one year.
The current assets always tend to include the cash, but they don’t necessarily always include the cash for the company. The examples of current assets include cash, equivalents of cash, prepaid expenses, inventory, accounts receivable, and so much more.
Use of Fixed Asset Management
For the proper management of your business, you should start using Fixed Assets Management Tools.
It will help you give proper and timely attention to the important action items. You can use tools like Asset Panda for this purpose which will for sure be quite beneficial for you.
Some of the key benefits are-
1) Proper storage of the entire asset-related data
2) Easy auditing and reporting because of centralized asset information due to fixed asset management
3) Simplified asset allocation with the help of automated asset management
4) Top-notch existence of assets with utmost efficiency
So, that is all we have for you today.
There is no doubt that one needs to know a lot about the fixed asset if they want to run their business in the best way.
We certainly hope that this article provided a little bit of information on that aspect to the readers.
What are the fixed assets of your business? Share with us in the comment section below. In case of any doubts about the same, ask your queries in the comments as well.