Most of the business takes into account the revenue while assessing the financial status of the organisation at the end of a fiscal year. However, one essential item is not considered in this equation. This item is known as a fixed asset.
Fixed assets represent a very crucial part of a business and are useful in assessing the valuation of the business.
Fixed Assets- Definition
Fixed assets are items that a firm owns and uses it to generate income by utilising it in conducting operations of the business. Fixed assets are not readily consumed or converted into cash within a year as they are acquired to be used for the long term.
Therefore, fixed assets are known as non-current assets also. Fixed assets are represented in the balance sheet as property, plant, and equipment. They are also known as capital assets.
The purpose of a fixed asset is to provide benefits to the organisation for more than one accounting period.
Types of Fixed Assets
Fixed assets are classified into two main types: 1) Tangible and 2) Intangible Assets
Tangible Assets: These are assets that are having a physical form and some of them are subjected to depreciation like computer equipment, machinery. While some assets tend to appreciate over time such as land. So these factors should be taken into consideration when determining the value of the asset.
Intangible Asset: Assets of this category are lacking a physical form but are of significance for a company. These assets are hard to value. The examples of intangible assets are goodwill, patent, trademark etc.
Businesses can create or acquire intangible assets. For e.g. Goodwill is created by the conducts and timely delivery of goods and services by the business to customers whereas purchasing a patent right is an example of acquiring assets. Intangible assets are amortized.
To know more about such exciting concepts and to check out economics MCQs, stay connected with BYJU’S.