Fixed Assets
These are tangible, relatively long-lived items owned through the business. The benefit of these assets is obtainable not only in the accounting period wherein the cost is incurred but over several accounting periods. Recent assets give benefits to the organization by their exchange in cash. In the case of fixed assets, value addition arises through facilitating the process of production or trade. Or we can say, benefits from fixed assets are indirect quite than direct.
All man made things have restricted life. In accounting we are concerned along with the helpful life of the assets. Practical life is the period for that a fixed asset could be economically used. It implies that the benefits from the fixed assets will flow to the organization during its useful life. Another aspect of which is that the cost incurred in the duration of purchase of the asset will be providing benefits over the practical life of the asset.
Valuation of the fixed assets is generally made on the basis of original cost. Though, since assets have restricted life the cost will be expiring along with the expiration of the life. So, valuation of the asset is reduced through an amount proportionate to the expired life of the asset. That expired cost is considered to as depreciation in accounting.
Fixed assets usually comprise assets as land, building, machinery, plant and motor vehicles. All these items, along with the exception of land such are depreciated. Land is not subject to reduction and hence demonstrated separately from other fixed assets.