Fixed assets

(noun)

Assets that produce revenues. They are distinguished from current assets by their longevity. They are not for resale.

Related Terms

(noun)

Fixed assets, also known as non-current assets or property, plant, and equipment (PP&E), is a term used in accounting for assets and property that cannot easily be converted into cash. This can be compared with current assets, such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed.

Related Terms

Examples of Fixed assets in the following topics:

  • Fixed Assets Turnover Ratio

    • Fixed-asset turnover is the ratio of sales to value of fixed assets, indicating how well the business uses fixed assets to generate sales.
    • In most cases, only tangible assets are referred to as fixed.
    • Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet).
    • Fixed asset turnover = Net sales / Average net fixed assets
    • Fixed-asset turnover indicates how well the business is using its fixed assets to generate sales.

  • Return on Assets

    • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
    • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
    • $Return\quad on\quad Total\quad Fixed\quad Assets\quad =\quad \frac { Net\quad Income }{ Average\quad of\quad Fixed\quad Assets }$
    • Return on Total Fixed Assets equals the business's net income divided by the average value of the business's total fixed assets for the accounting period.
    • You calculate the average value of the business's fixed assets by adding the value of the business's total fixed assets at the beginning of the accounting period to the value of the total fixed assets at the end of the period.

  • Asset Turnover Ratio

    • $Fixed\quad Asset\quad Turnover\quad =\quad \frac { Net\quad Sales }{ Average\quad Net\quad Fixed\quad Assets }$
    • The fixed-asset turnover ratio is calculated in a similar manner, except instead of focusing all of the business's assets, the ratio is calculated using the business's fixed assets.
    • This ratio measures how well a business is using its fixed assets to generate sales.
    • To calculate the fixed asset turnover ratio, divide the total sales for the accounting period by the average fixed asset balance for the accounting period.
    • The average fixed asset balance equals the beginning balance of fixed assets for the period plus the ending balance of fixed assets for the period, then dividing by two.

  • Types of Long-Lived Assets

    • The two major asset classes are tangible assets (e.g., buildings and equipment) and intangible assets (e.g. copy rights).
    • Tangible assets include fixed assets, such as buildings and equipment.
    • Fixed assets-- also referred to as property, plant, and equipment-- are purchased for continued and long-term use in generating profit for a business.
    • Fixed assets include asset land, buildings, machinery, furniture, tools, IT equipment-- e.g. laptops-- and certain limited resources-- e.g. timberland and minerals.
    • They are listed under the asset portion of the balance sheet.

  • Loss Restoration

    • Fixed asset values can be revised to reflect an increase or decrease in value; upward revisions can recover earlier impairment losses.
    • Under International Financial Reporting Standards, once a fixed asset has been revalued its book value can be adjusted periodically to market value using the cost model or the revaluation model.
    • The cost model records an asset at its historical cost.
    • If an asset becomes impaired and an impairment loss results, the asset can fall under the revaluation model that allows periodic adjustments to the asset's book value.
    • After an asset have been revalued, the asset's depreciation expense must change to reflect the new value.

  • The Capital Account

    • The capital account acts as a sort of miscellaneous account, measuring non-produced and non-financial assets, as well as capital transfers.
    • The first is a broad interpretation that reflects the net change in ownership of national assets.
    • The capital account can be split into two categories: non-produced and non-financial assets, and capital transfers.
    • Non-produced and non-financial assets include things like drilling rights, patents, and trademarks.
    • Capital transfers include debt forgiveness, the transfer of goods and financial assets by migrants leaving or entering a country, the transfer of ownership on fixed assets, the transfer of funds received to the sale or acquisition of fixed assets, gift and inheritance taxes, death levies, and uninsured damage to fixed asset.

  • Assets

    • In financial accounting, assets are economic resources.
    • Simply stated, assets represent ownership of value that can be converted into cash (although cash itself is also considered an asset).
    • Two major classes are tangible assets and intangible assets .
    • Tangible assets contain various subclasses, including current and fixed assets.
    • Current assets include inventory, while fixed assets include such items as buildings and equipment.

  • Noncash Items

    • Fixed assets, also known as a non-current asset or as property, plant, and equipment (PP&E), is an accounting term for assets and property.
    • Unlike current assets such as cash accounts receivable, PP&E are not very liquid.
    • PP&E are often considered fixed assets: they are expected to have relatively long life, and are not easily changed into another asset .
    • For example, an asset worth $100,000 in year 1 may have a depreciation expense of $10,000, so it appears as an asset worth $90,000 in year 2.
    • Examples of intangible assets include copyrights, patents, and trademarks.

  • Total Assets Turnover Ratio

    • Total asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.
    • Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.
    • Total assets turnover = Net sales revenue / Average total assets
    • Tangible assets contain various subclasses, including current assets and fixed assets.
    • Current assets include inventory, while fixed assets include such items as buildings and equipment.

  • Basic Components of Asset Valuation

    • This is used for assets whose carrying value is based on mark-to-market valuations; for fixed assets carried at historical cost (less accumulated depreciation), the fair value of the asset is not used.
    • The reason for not using the book value of the old asset to value the new asset is that the asset being given up is often carried in the accounting records at historical cost.
    • In the case of a fixed asset, its value on the balance sheet is historical cost less accumulated depreciation, or book value.
    • The book value of a fixed asset asset is its recorded cost less accumulated depreciation.
    • An old asset's book value is usually not a valid indication of the new asset's fair market value.