Fixed assets

Definition

Fixed assets are long-term tangible assets used in the operations of a business and not expected to be consumed or sold within a year. Examples include property, plant, and equipment.

5 Must Know Facts For Your Next Test

1. Fixed assets are recorded on the balance sheet under non-current assets.
2. Depreciation is applied to fixed assets to allocate their cost over their useful life.
3. Land is a fixed asset but is not depreciated because it typically appreciates in value.
4. Impairment occurs when the carrying amount of a fixed asset exceeds its recoverable amount.
5. Fixed assets can be financed through various means, including loans or capital leases.

Review Questions

• Where are fixed assets recorded on the financial statements?
• What accounting process is applied to allocate the cost of fixed assets over time?
• Why isn't land depreciated like other fixed assets?

Related terms

Depreciation: The systematic allocation of the cost of a tangible fixed asset over its useful life.

Impairment: A permanent reduction in the value of an asset below its carrying amount.

Capital Lease: A lease considered to have the economic characteristics of asset ownership for accounting purposes.