Tangible fixed assets

What it means

Tangible fixed assets are physical items a company uses for more than a year and did not buy to resell: land, buildings, machinery, vehicles, fittings. They do not hit expenses at once but gradually through depreciation.

The company sets its own threshold in an internal rule for when an item counts as a fixed asset rather than low-value property. The Income Tax Act has its own cost threshold, and the two need not match.

The same item can be a fixed asset in one company and inventory in another. A car in a showroom is stock for sale; the car a sales rep drives is a fixed asset. What decides is the purpose the company holds it for, not what the item is or what it cost.

How it works in practice

On capitalisation the entity fixes the acquisition cost, the date the asset was put into use and the depreciation group. Accounting depreciation goes into the depreciation plan by real useful life, tax depreciation follows the statute.

The asset card has to agree with the balance sheet and with the stocktake. On a sale or disposal the residual value is written off and the last works are checked for whether they were a capital improvement, which raises the asset’s cost.

Acquisition cost also includes costs tied to acquiring the asset: transport, installation, customs duty or design documentation. When a client expenses them straight away, the first year looks worse, depreciation in later years comes out lower, and the asset card no longer matches what the company really paid.

What to watch out for

When a building is bought, the land has to be separated out of the price: land is depreciated neither for accounting nor for tax and stays on the books at its original cost. A company that capitalises the whole price as a structure depreciates the land as well, and an audit strikes those amounts out of its tax expenses.

An asset no longer in use stays in the books until it is formally disposed of. A machine taken to the scrapyard without a disposal record lives on in depreciation, and its residual value reaches expenses late or not at all, because an audit finds no proof of when and why it was retired.