Fixed Assets
Long-term tangible assets used in business operations, such as buildings and equipment, that are not expected to be converted to cash within one year.
What is Fixed Assets?
Fixed assets, also called property, plant, and equipment (PP&E) or non-current assets, are tangible long-term resources a company uses to generate revenue over multiple accounting periods. They include land, buildings, machinery, vehicles, and computer equipment. Unlike current assets, fixed assets are not intended for resale and are expected to provide economic benefits beyond one year. Fixed assets are recorded at cost on the balance sheet and depreciated over their useful lives — except land, which is not depreciated. The net book value of fixed assets equals the original cost minus accumulated depreciation.
Example
A manufacturing company purchases a production line for $10 million with an estimated useful life of 10 years and no salvage value. Using straight-line depreciation, it records $1 million in depreciation expense annually. After five years, the machine appears on the balance sheet at gross cost of $10 million less accumulated depreciation of $5 million, for a net book value of $5 million. When the machine is eventually sold or retired, any gain or loss on disposal is recognized in the income statement.