In the business world, the asset refers to the wealth owned by the company while carrying out its business activities.
These assets are always assessed and calculated, then included in the financial statements.
Financial analysis of assets is needed to determine feasibility in a business called the Net Present Value (NPV) method.
So, as an accountant, you must be well-versed with the different types of assets found in the world of accounting.
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The different types of assets include examples of fixed assets, current assets and variable assets. Each type of asset has its own meaning, character and function.
Then, what are the definitions and examples of fixed assets? To answer this question, it’s a good idea to listen to this article to the end.
Definition of Fixed Assets
Fixed assets are non-current assets that are tangible, owned and used by the company in its operations to generate income.
Therefore, fixed assets have a longer useful life than current assets and are not normally consumed or converted to cash within one year.
If you think that fixed assets are things like chairs or tables that are the same as inventory, then you are wrong. However, it still has to be recorded in the inventory application even with a different classification.
Fixed assets are important items for a company and are purchased or leased only once every few years.
Fixed assets refer to long-term tangible assets. Tangible assets themselves mean assets with a physical form and have value.
Examples are property, factory buildings, and equipment used in business operations.
The use of tangible assets provides long-term financial benefits, has a useful life of more than one year, and is classified as a fixed asset on the balance sheet.
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Characteristics of Fixed Assets
One of the functions of fixed assets is to keep the company capable of producing or supplying goods or services, for rent, or for use within the company.
Characteristics that always arise from fixed assets are as follows:
1. Has a Utilization Period of More Than One Year
Fixed assets are non-current assets that have a useful life of more than one year and are recorded in the company’s balance sheet as fixed assets
This is because the company really needs fixed assets for the continuity of its business.
The term “fixed” indicates that the asset will not be used or sold.
2. Depreciable in Value
The next characteristic of fixed assets is that their value can be depreciated.
This is to reflect wear and tear on the use of fixed assets, unless the asset is in the form of land or land.
3. Can Provide Long-Term Financial Benefits
Generally, fixed assets are used by companies to produce goods and services and generate income.
Companies or businesses will not be that easy to sell to consumers for investment purposes.
4. Illiquid
Fixed assets are non-current assets on a company’s balance sheet which is one of the three fundamental financial statements.
In accounting, fixed assets are the key to financial modeling so they cannot be easily converted into cash.
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Tangible and Intangible Fixed Assets
Fixed assets are divided into two types, namely tangible fixed assets and intangible fixed assets. What is the difference?
Tangible fixed assets are fixed assets which basically have a physical and permanent form so that they can be used for a relatively long period of time. For example company buildings, land, and tools in it.
Meanwhile, intangible fixed assets are fixed assets whose form is almost invisible but has its own value or values . Examples such as copyrights or patents.
By looking at this definition, the difference between tangible and intangible fixed assets can be seen through their form, age of use, method of acquisition, recording, and depreciation/depreciation.
Example of Fixed Assets
Companies can buy or sell fixed assets at any time.
However, the company’s position for sustainable growth depends on the investment in fixed assets made. Some examples of fixed assets include:
1. Building
Companies operating in physical locations generally have many types of buildings as their fixed assets.
Call it office space, factory buildings, warehouses, retail stores, and so forth.
If a company owns a building, it is capitalized to the building’s fixed asset account.
Land or land on which a building is built is also recorded in a separate land fixed asset account.
Both must be recorded separately because buildings can depreciate (depreciation in value), while land cannot.
2. Computer Hardware and Software
Most companies have computers and software programs to carry out their basic business functions.
Computer hardware usually includes PCs, laptops, servers, and tablets.
A computer hardware or software is capitalized or not, generally depending on the company’s capitalization threshold.
It is important to remember that the cost of acquiring an asset and getting it ready for use is included in the “cost of the asset”.
For example, if the company’s capitalization threshold is Rp. 75,000,000, then the total computer unit costs Rp. 50,000,000, then Rp. 25,000,000 is a fixed asset.
3. Furniture
Large furniture or equipment whose value is above the capitalization threshold are included in fixed assets.
As is the case with an example of a company’s fixed assets that have coverage ranging from tables, chairs, cubicles, electricity, and filing cabinets.
For companies with a break room or kitchen, furnishings can also include microwaves, refrigerators, and other large appliances.
When a company sets a capitalization threshold, it must have a written policy and be able to maintain it under audit.
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4. Soil
Land includes examples of company fixed assets with or without buildings on site.
This is the only fixed asset that is not easily depreciated over time.
All improvements to land assets must be capitalized separately and depreciated.
Soil or land improvements can include adding sidewalks, driveways, fences and outdoor lighting.
5. Machine
Machinery is an example of a company’s fixed assets in the form of equipment to assist employees in carrying out their work.
These assets can include manufacturing or manufacturing equipment, commercial or 3D printers, transportation machinery, and construction equipment.
6. Vehicles
The Company also records various vehicles owned as fixed assets, such as semi-trucks, cars, airplanes, ships and trains.
Companies that generally have several vehicles registered as fixed assets include transportation companies, airlines, and car rental agents.
In addition, there are also shipping service companies and shipping lines that have more vehicle fixed assets than other companies.
Office vehicles can be categorized as company fixed assets even though the field factor is used by employees.
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Steps to Record Fixed Assets
If you perform accounting tasks for a business or corporation, here are some steps you can try to record fixed assets:
1. Review Financial Records Regarding Fixed Assets in Prior Periods
The first step, collect records from previous years to get a more complete picture of your current business fixed assets.
Each company has a record of controlling each fixed asset for one period or within one year.
You will also need to calculate depreciation for each fixed asset your company records to make sure you have an accurate figure or value.
2. Record Newly Acquired Fixed Assets
Every 1 year period it is better for a company to do archiving on its fixed assets.
For this reason, every incoming goods must be accompanied by clear proof of payment to find out the initial value of the fixed assets. Usually the purchasing staff is responsible for buying the company’s operational needs.
Period of utilization and depreciation also need to be updated regularly. So that the company knows the lowest point of value of an asset.
Before it is worth discarding or renewing, a company will set a minimum standard for the value of an item (eg 8% of the acquisition cost).
This minimum value will be useful as information for calculating asset depreciation, and updated every 3 months for tax renewal purposes.
Because many factors and methods affect the calculation of depreciation. Between one company and another certainly has a different way.
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3. Create a List of Assets Sold
Fixed assets will be credited according to their historical value if there is a transfer of assets in terms of asset sales.
Then the depreciation accounting account will be debited with the amount of assets that have experienced depreciation.
Transaction gains and losses can be seen through the results of calculating the value of assets sold with capital for the procurement of goods or assets. Be sure to use an inventory app for this, so that none of the sold assets go unnoticed.
Therefore you must understand the meaning and examples of fixed assets in the circulation of money and accounting records in the company you manage.
By studying this article, managing company financial accounting is not difficult.