What are fixed assets?

A wholesaler buys a new forklift, a service firm equips its team with laptops and a small manufacturer invests in a packing line. All of these will be used for many years. Booking the full price as an ordinary expense in the year of purchase would distort that year, so the business records them as items it owns, on the balance sheet, under assets.

What counts as a fixed asset is partly a decision for the company. Many businesses set a minimum value, so that a coffee machine or a box of pens simply goes through as a cost. Agree the limit with your bookkeeper or accountant and stick to it. Otherwise similar purchases get treated differently from one year to the next and the figures become hard to compare.

Each fixed asset needs a standard set of details: the purchase date, the cost, the expected useful life and where it is kept or who uses it. Without that list nobody can later say whether a machine still exists, whether the van was sold or whether a broken printer is still on the books. The annual accounts, the insurer and the tax return all ask for the same information.

Over time the book value of an asset falls through depreciation. When you sell or scrap an asset, you also remove it from the records and book the difference against its book value as a gain or a loss. This step is often forgotten, which leaves the balance sheet too high and depreciation running on something the business no longer has.

Remember too that the cost of an asset can be more than the amount on the supplier invoice. Transport, installation and commissioning often belong in it. If you want to know which department carries the cost of a machine, link its depreciation to a cost centre so that the charge lands in the right place.