What Is Furniture, Fixtures, and Equipment – FF&E?
Furniture, fixtures, and equipment (abbreviated FF&E or FFE) are movable furniture, fixtures, or other equipment that have no permanent connection to the structure of a building or utilities. These items depreciate substantially over their long-term use, but they are important costs to consider when valuing a company, especially during liquidation procedures.
Examples of FF&E include desks, chairs, computers, electronic equipment, tables, bookcases, and partitions. Sometimes the term furniture, fixtures, and accessories (FF&A) is used in place of FF&E.
Furniture, Fixtures, and Equipment Explained
Accountants compile all of the furniture, fixtures, and equipment (FF&E) listed in a company's balance sheet detail into a separate line item in a budget or financial statement under tangible assets for various purposes. The FF&E balance is added into a project's total costs to determine if a purchase comes in under or over the budget. Items in the FF&E category generally have a life span of three years or more.
An asset is classified as FF&E if it is used by a business to conduct its normal, daily operations. A chair for the front desk person at an office building counts as an FF&E item because the employee needs the chair to perform daily tasks to keep the business running smoothly, for example.
The telephone sitting on the desk is categorized the same way; the administrative assistant cannot function without answering the phone and forwarding calls. The person's computer, printer, filing cabinet, desk organizer, and pen holder are all categorized as FF&E when classifying these items on the company's balance sheet.
All kinds of businesses list several types of FF&E used in normal daily operations. Automotive equipment, such as trucks, cars, and tractors, fall into this category. The Federal Reserve, for example, has material handlers, forklift trucks, drill presses, and currency counters for the equipment it uses on a regular basis.
Other security equipment, such as X-ray scanners, biometric devices, magnetometers, and access control devices, also fall into this category because Federal Reserve staffers can move this equipment out of the building.
- Furniture, fixtures, and equipment (FF&E) are items that aren't attached and can be removed from a building.
- FF&E items are assigned a useful life for accounting purposes, according to IRS rules.
- Companies account for wear and tear of FF&E items by depreciating them over their useful life and recording a lower net book value.
Real World Example of FF&E Accounting Treatment
FF&E items typically have a useful life of more than one year, and accountants spread the acquisition costs over time by depreciating them over the life of the equipment. Financial officers determine the depreciation of FF&E in several ways.
The first rule of thumb is to correctly determine the useful life of the item, based on IRS rules. A desktop computer may be outdated technology after three years, but according to the IRS, it has a useful life of five years. Office furniture, on the other hand, has a useful life of seven years, for depreciation purposes.
The Federal Reserve uses the straight-line method of depreciation to determine the depreciated value of its FF&E items. This means the Federal Reserve takes the cost of the asset minus any salvage value, and then divides the result by the estimated useful life, in months, to arrive at a monthly depreciation charge. Depreciation continues until the end of an item's useful life.
Real World Example of FF&E Depreciation
Say that a car is worth $10,000 new, and according to the IRS, it has a useful life of five years. The maximum salvage value of the vehicle is 20%. When a company first buys the car, they record a monthly depreciation charge of
The depreciation charge is $133.33 at the end of the first month. The company records the depreciation in a contra-asset account on the balance sheet, called accumulated depreciation. The net book value of the car is calculated as the difference between the original book value and the amount of its accumulated depreciation.