A fixed asset is a tangible asset a business buys to use over the long term in its operations - land, buildings, machinery, computers and vehicles. Collectively these are called property, plant and equipment (PPE). Because they are held for more than twelve months, fixed assets are a type of non-current asset.
What it means
Fixed assets are not consumed in a single period, so their cost is not expensed all at once. Instead it is carried on the balance sheet and written down over the asset's useful life through depreciation. If the asset's value drops below its carrying amount, an impairment is recognised on top of normal depreciation.
Where it fits in
The clearest payroll link is the company vehicle: it is a fixed asset on the balance sheet, but an employee's private use of it creates a taxable fringe benefit that runs through payroll. The asset and the benefit are accounted for separately.
Key rules
- A long-lived tangible asset used in operations, not for resale.
- Carried as a non-current asset on the balance sheet.
- Cost is spread over useful life via depreciation.
- Written down further through impairment if value falls.
