Fixed Assets

Fixed Assets

Fixed Assets Jonathan Poland

Fixed assets are long-term resources that are owned by a business and are used to generate future economic benefits. In order for an asset to be considered a fixed asset, it must be possible to accurately measure its cost, and it must be difficult to convert the asset into cash quickly. Fixed assets can include tangible assets such as real estate, machinery, and equipment, as well as intangible assets such as patents, trademarks, and copyrights. Fixed assets are a key component of a company’s balance sheet and are typically recorded as long-term assets. They are important to a company’s operations and contribute to its overall value.

Property
Property includes land and land improvements. Land is a special type of fixed asset because its value doesn’t deprecate over time. Land improvements such as a road can be deemed as part of the land and not deprecated. In some cases they can be deprecated where they have a useful lifespan. For example, a bridge with a lifespan of 25 years.

Plant
Plant refers to buildings and other structures. This is a dated industrial-era term that comes from the manufacturing sector. This is still used by accounting standards to describe any building. For example:

  • Data Center
  • Factory
  • Hotel
  • Housing
  • Office Building
  • Restaurants
  • Retail Location
  • Telecom Tower
  • Warehouse

Equipment
Any equipment, machine, device or other physical entity that produces future value. Again, this is a manufacturing term that is used for all industries. For example:

  • Appliances
  • Computers
  • Energy Infrastructure
  • Furniture
  • IT Infrastructure
  • Machines
  • Robots Vehicles

Intangible Assets
It can be difficult to reliably determine a cost of an intangible asset. Likewise, intangible assets often have questionable future value. As such, the criteria for capitalizing intangible assets are quite stringent. Some costs of intellectual property can be considered fixed assets. For example, legal fees for establishing and defending a patent. Likewise, any intangible value that you buy from another firm can be considered a fixed asset because this establishes a cost. For example, if you purchase a trademark from a competitor. Software purchases are fixed assets and certain costs for developing software for internal use can often be considered a fixed asset. In some cases, it is not possible to amortize intangible assets because they are considered to have an indefinite lifespan.

  • Contractual Rights (e.g. Franchise Agreement)
  • Copyright
  • Goodwill
  • Patent
  • Software
  • Trademark
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