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What are Fixed Assets?

Fixed assets are long-term physical resources a business owns and uses to operate for more than one year, such as machinery, vehicles, furniture, buildings and land. They are not intended for resale and are recorded on the balance sheet, where their cost is expensed gradually over their useful life through depreciation.

What makes an asset fixed is not that it cannot move but that it is held to be used, not sold, and that it lasts beyond a single accounting period. A delivery van, a shop fit-out and office furniture are all fixed assets. Inventory and the money in the bank are the opposite: they are current assets, expected to be used up or converted to cash within a year.

Fixed assets are depreciated because they wear out or become obsolete. Each year a portion of the asset's cost is expensed, which spreads the purchase price over the years it helps generate revenue. Land is the standard exception: it is usually not depreciated because it does not wear out. Keeping an accurate fixed-asset register matters for both tax and for knowing the true replacement cost of the equipment the business depends on.

Example

A café buys an espresso machine for €5,000 and expects it to last five years. The machine is a fixed asset, and the café expenses roughly €1,000 a year as depreciation rather than the whole €5,000 in the month of purchase.

Questions

What is the difference between fixed assets and current assets?

Fixed assets are long-term resources used to operate the business for more than a year, like equipment and vehicles. Current assets are short-term, like cash and inventory, expected to be used up or turned into cash within a year.

Why are fixed assets depreciated?

Because they wear out or become obsolete over their useful life. Depreciation spreads the purchase cost across the years the asset helps earn revenue, so profit is not distorted by a single large expense in the year of purchase.

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