Finance For Managers.

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Fixed assets

Fixed assets represent the more or less permanent assets of the business. They are not normally for re-sale. Examples include premises, fixtures & fittings, furniture, equipment and motor vehicles.

Investments of a long-term nature may also be included. The purchase of stocks and shares in other companies of property investment are some examples.

These fixed assets are ‘tangible’ because they can be seen. Some assets are ‘intangible’ because they cannot be seen. Goodwill is one of the latter and represents the good name or reputation of the business, which could be valuable, if it is sold.

Three examples of fixed assets are:

  • Premises or buildings

This is considered to be a fixed asset because it is owned either by the business or by the owner and is of value. Buildings are property and are therefore usually not re-sold; they tend to be more permanent assets to the business.

  • Equipment

This is a purchase by the business and can include such things as stationary, machinery and other items relating to the running of the business. The origin of the business and the type of product that it produces will determine what equipment it purchases. A disadvantage is that equipment can be seen to be a minor expense than that of the premises. Therefore, the concept that all equipment are fixed assets can be untrue.

  • Motor vehicles

A business may need to purchase vehicles such as lorries or cars so that it can deliver suppliers or stocks. In some businesses, company cars are provided for workers to visit clients, for example. In both cases, maintenance of motor vehicles in necessary, meaning constant checks and repairs, as well as fuel and general running costs. Vehicles are therefore identifies to be fixed assets in a company’s financial statements.

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Depreciation is the process of allocating in a systematic and rational manner the cost of a capital asset over the period of its useful life. The concept takes into account the decrease in the service potential of capital assets invested in a business venture, resulting from such a number of different causes:

  • Wear and tear
  • Deterioration
  • Erosion
  • Obsolescence
  • Technological changes
  • Introduction of new and better machinery and methods of production

Depreciation is an expense and is a charge against the profits of the business in the profit & loss account.


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