Fixed Assets: Definition & Example

Understand

Fixed Assets (also known as long-term assets) are resources, own a company to attain benefits for more than one year, these assets are also called non-current assets, usually use in business operating activities. For example, machinery, plant, building and vehicles etc. These assets are not held for sale rather use in the production process, to supply, to rental and administrative purposes. These assets are valued at cost minus accumulated depreciation

Example

Suppose a company purchases a vehicle to transport its inventory to stores for $10,000. The useful life of the vehicle is expected to be 15 years. The vehicle purchased would provide monetary benefits to the company for fifteen years and under the straight-line method of depreciation, the depreciation expense per year will be ($10,000/15) $666 per annum.

Importance of Fixed Assets

Information about a company’s assets helps to calculate business valuation and ratio analysis, investors use these measures to select most appropriate companies to whether invest money or lend.

Next: Difference between Fixed and Current Assets

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