Fixed Assets
In this article, Shruti CHAND (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2022) elaborates on the concept of fixed assets.
Fixed Assets:
A fixed asset on a balance sheet is any asset that has a useful life greater than one year. Typically, a fixed asset is not intended to be resold within a short period of time. Fixed assets can also be understood as any non-current asset are recorded on the Balance Sheet with other assets.
Examples of Fixed assets on a company’s balance sheet:
- Property
- Building
- Machinery
- Land
The fixed assets are usually recorded at the net book value, which is nothing but the price at which it was acquired. Over time, all the lost value in the fixed assets arising out of holding these assets is recorded as impairment charges and depreciation in the balance sheet.
Out of intuition, it is fair to assume that Fixed costs are large assets which are immovable, but that is not true. An office equipment such as Office Computer can also be a fixed asset if it exceeds the capitalization limits of the concerned business.
Depreciation of fixed assets
Fixed assets can not be converted into cash easily. It is usually acquired by the company to produce more goods and services, hence the use that the fixed assets are put into can lead to its depreciation in value.
This decrease in value is recorded as depreciation in the books of accounts (Balance Sheet). Depending on the company, the depreciation methods vary. For instance, if the company uses a straight line method, the same amount of depreciation is recorded every year for a fixed period of time until the value of the asset is zero.
Example of depreciation
Let’s say a company purchases machinery and plants for $100000 and the useful life of the asset is fixed at 10 years, then every year $10000 will be recorded as depreciation in the books of accounts for the next 10 years and at the 10th year, the value of the asset in the book finally will be 0.
Relevance to the SimTrade certificate
This post deals with Fixed Assets on the Balance Sheet of the companies investors might be assessing to understand the financial health of the company.
About theory
- By taking the SimTrade course, you will know more about how investors can use various strategies to invest in order to trade in the market.
About practice
- By launching the series of Market maker simulations, you can extend your learning about financial markets and trading approaches.
Related posts on the SimTrade blog
▶ Shruti CHAND Balance Sheet
▶ Shruti CHAND Assets
▶ Shruti CHAND Long-term securities
About the author
Article written by Shruti CHAND (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2022).