What are fixed assets? A fixed asset is an item with a useful life greater than one reporting period, and which exceeds an entity's minimum capitalization limit. A fixed asset is not purchased with the intent of immediate resale, but rather for productive use within the entity. An inventory item cannot be considered a fixed asset, since it is purchased with the intent of either reselling it directly or incorporating it into a product that is then sold. The following are examples of general categories of fixed assets: Buildings Computer equipment Computer software Furniture and fixtures Intangible assets Land Leasehold improvements Machinery Vehicles Fixed assets, also known as Property, Plant and Equipment, are tangible assets held by an entity for the production or supply of goods and services, for rentals to others, or for administrative purposes. These assets are expected to be used for more than one accounting period. Fixed assets are generally not considered to be a liquid form of assets unlike current assets. Examples of common types of fixed assets include buildings, land, furniture and fixtures, machines and vehicles. The term 'Fixed Asset' is generally used to describe tangible fixed assets. This means that they have a physical substance unlike intangible assets which have no physical existence such as copyright and trademarks. Fixed assets are not held for resale but for the production, supply, rental or administrative purposes. Assets that held for resale must be accounted for as inventory rather than fixed asset. So for example, if a company is in the business of selling cars, it must not account for cars held for resale as fixed assets but instead as inventory assets. However, any vehicles other than those held for the purpose of resale may be classified as fixed assets such as delivery trucks and employee cars. Fixed assets are normally expected to be used for more than one accounting period which is why they are part of Non Current Assets of the entity. Economic benefits from fixed assets are therefore derived in the long term. Key Accounting Issues in the Fixed Asset Life Cycle: Fixed assets range from tangible equipment and computers to intangible computer software programs and copyrights or trademarks. Regardless of the type or category of a fixed asset, all contribute to business productivity and profitability, all have a useful life of more than one year and all eventually become used up or wear out over time. Just as a business’s inventory items have a product life cycle, so do its tangible and intangible fixed capital assets. The life cycle begins with acquisition, continues with consumption and maintenance and ends with disposal. Key accounting issues arising during this time focus mainly on financial reporting and asset valuation.
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