Define and explain the fixed assets of an organisation.
Fixed assets are long-term physical resources that are expected to provide future economic benefits to an organization. These assets are generally not meant for sale and are used in the production process or to generate income over an extended period of time, usually more than a year.
Examples of fixed assets include:
1. Land and buildings: This includes the organization's owned properties such as office buildings, factories, warehouses, and land used for operations. These assets tend to appreciate in value over time.
2. Machinery and equipment: These are physical assets used to carry out production processes, such as manufacturing equipment, vehicles, computers, and furniture. They are essential for the organization's operations and are usually depreciated over their useful life.
3. Intangible assets: These are non-physical assets that lack a physical substance but hold significant value for the organization. Examples include patents, copyrights, trademarks, and goodwill. Intangible assets are typically amortized over their useful life.
4. Investments: Long-term investments made by the organization, such as shares in other companies, can also be considered fixed assets. These assets are held to earn dividends, interest, or to gain control over other businesses.
Fixed assets are recorded on the balance sheet of an organization and are subject to regular impairment tests and depreciation. Depreciation is the systematic allocation of the cost of an asset over its useful life to reflect the gradual wear and tear or obsolescence. By depreciating these assets, organizations match their cost with the revenue generated by their use over time, providing a more accurate representation of their value on the balance sheet.
Fixed assets are crucial for the operational stability and growth of an organization. They form the basis of its productive activities and contribute to long-term performance and profitability.