What is a Fixed Asset?

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What is a fixed asset?

A fixed asset is an item which a business purchases and uses to generate its income.

What is a Fixed Asset?

Unlike an asset like stock which you may buy to sell onto customers, a fixed asset is an overhead which you buy to run your business.  A fixed asset however is not classified as an overhead because it will last for more than one year.

Examples of a Fixed Asset

  • Computers & Laptops;
  • Office furniture;
  • Equipment and machinery which the business purchases to generate its income;
  • Buildings;
  • Vehicles;
  • Office improvements.

Fixed Asset Example 1

A business takes on a new employee which means they need to buy a new laptop.  The laptop will last more than one year so is classified as a fixed asset.

Fixed Asset Example 2

A photographer is sets up a new business.  The photographer buys new camera and lighting equipment.  This is essential to generate income. The new camera and equipment are all fixed assets.

Fixed Asset Example 3

A distribution business 10,000 units of stock from a supplier and storage for the new stock to be installed in its warehouse.  The 10,000 units of stock are not a fixed asset since they will be sold onto customer. The new storage is a fixed asset since the business will use this for years to come.

Fixed Assets and Financial Statements

Fixed assets are shown on your balance sheet with a fixed asset note in the accounts to add more detail. Here is an example of each:

Example balance sheet
Example Balance Sheet
example fixed asset note
Example Fixed Asset Note 

How to Work out the Cost of a Fixed Asset

The cost of a fixed asset is its cost plus amounts paid to get the asset installed and usable.  These are costs like:

  • Purchase price;
  • Delivery costs;
  • Installations;
  • Guarantees.

In Fixed Asset Example 3 the cost of the storage would be:

  • The cost of the storage plus;
  • Any installation costs.