Fixed assets

What it means

Fixed assets serve the company for more than a year: machinery, vehicles, buildings, furniture, software, trademarks. They divide into tangible, intangible and financial, and on the balance sheet they form the most stable part of assets.

They do not hit the profit account at once but gradually through depreciation over their useful life. The boundary against low-value assets is set by the Income Tax Act and by the company’s own internal rule.

What decides the classification is not the kind of item but its purpose in the business. A car is goods in stock for a car dealer, to be sold, and a long-term asset for a builder, driven out to sites. The same item is recorded, valued and taxed quite differently in the two companies.

How it works in practice

Acquisition cost includes transport, installation, duty and anything else needed to bring the asset into use - but not interest or training, which are expensed directly. That is why all invoices for one investment are processed together rather than one by one.

Assets are kept on cards with the in-service date, depreciation group and location, and verified annually by stocktake. Under a lease, the contract type decides whether the lessee or the lessor carries the asset.

When a client buys a machine, we ask for the commissioning record showing the date it was put into use. Depreciation and the depreciation plan start from that date, not from the invoice date. A machine paid for in December but started up only in January is not depreciated in the old year.

What to watch out for

A routine error is booking a technical improvement as a repair. A repair maintains the original condition and is an immediate cost; an improvement changes parameters or purpose and increases the asset’s carrying amount. Inspections check that distinction early.

An asset that was sold, scrapped or lost has to be formally retired as well. If it stays on the register, depreciation continues on something the company no longer has, and the residual value does not reach costs in the right year. A missing record of the asset disposal is very hard to reconstruct after the fact in an inspection.