What Are Fixed Assets?
Fixed assets are long-term assets that a company has purchased and is using for the production of its goods and services.
Fixed assets are noncurrent assets, meaning the assets have a useful life of more than one year. Fixed assets include property, plant, and equipment (PP&E) and are recorded on the balance sheet. Fixed assets are also referred to as tangible assets, meaning they're physical assets.
Below are examples of fixed assets:
- Vehicles such as company trucks
- Office furniture
Fixed assets are not readily liquid and cannot be easily converted into cash. They are not sold or consumed by a company. Instead, the asset is used to produce goods and services.
Fixed tangible assets can be depreciated over time to reduce the recorded cost of the asset. Most tangible assets, such as buildings, machinery, and equipment, can be depreciated. However, land cannot be depreciated because it cannot be depleted over time unless it is land containing natural resources.
An example of a company's fixed asset would be a company that produces and sells toys. The company purchases a new office building for $5 million along with machinery and equipment that costs a total of $500,000. The company projects using the building, machinery, and equipment for the next five years. These assets are considered fixed tangible assets because they have a physical form, will have a useful life of more than one year, and will be used to generate revenue for the company.