What are fixed assets?
Fixed assets (also called property, plant and equipment, or PP&E) are long-lived tangible assets a business uses to produce goods or deliver services — not for resale. Under IFRS (IAS 16) and US GAAP (ASC 360), fixed assets are capitalised on the balance sheet at cost and depreciated over their useful life.
What qualifies
- Tangible: physical assets — buildings, machinery, vehicles, computers, office equipment.
- Long-lived: expected useful life longer than one accounting period (typically more than 12 months).
- Used in operations: not held for sale or investment.
- Capitalisable cost threshold: set by company policy (commonly $1,000–$5,000); below the threshold, items are expensed.
Fixed assets vs. related categories
- Fixed assets vs. current assets: current assets convert to cash within 12 months; fixed assets are held for the longer term.
- Fixed assets vs. intangibles: intangibles (software licences, patents, goodwill) are non-physical — accounted for under IAS 38 / ASC 350.
- Fixed assets vs. inventory: inventory is held for resale; fixed assets are held for use.
Depreciation
The capitalised cost is allocated as a non-cash expense over the asset’s useful life. Common methods: straight-line (equal annual charge — most common), declining-balance, units-of-production. The method must be reviewed periodically per IAS 16; changes are accounted for prospectively.
Why founders should care
Fixed-asset additions are capital expenditure (capex), not operating expense — they flow through the cash flow statement investing section. Heavy capex without matching revenue growth compresses free cash flow even when the income statement looks healthy.
Do: maintain a fixed-asset register with each item’s acquisition date, cost, useful life and accumulated depreciation; review impairment annually.
Don’t: expense large purchases that should be capitalised — it overstates current-period loss and understates future depreciation.