Fixed Asset

Fixed assets are critical for organizations across the public and private sectors. They play a vital role in operations, and their effective management helps maintain financial health. 

From office buildings to machinery, these tangible, long-term investments generate revenue and support day-to-day activities. Effectively managing fixed assets ensures their optimal utilization, reduces costs, and enhances organizational efficiency.

We’ll detail what fixed assets are, what documents help organizations manage them, and their importance to successful operations.

What is a fixed asset?

A fixed asset is a tangible, long-term piece of property or equipment that a company owns. They are used in operations to generate income. These fixed assets are not intended for immediate sale and typically have a useful life of more than one year. They are considered operation assets because they serve a purpose in day-to-day functions.

Fixed assets are crucial for organizations. They enable operations and increase growth. Effective fixed asset management strategies ensure they live their maximum useful life. These plans align with organizational goals by allocating resources effectively and amortizing investment costs. 

Fixed asset examples

Before diving too deep into fixed asset concepts, it’s important to demonstrate what they are. Fixed assets can be categorized into various types based on their function and use across different industries. Below is a breakdown:

Category	Examples	Industries	Purpose
Land and buildings	Office spaces, warehouses	Private sector, education, healthcare, municipalities	Operations, storing goods, generating revenue
Machinery and equipment	Manufacturing tools, HVAC systems, water heaters, pumps	Industrial, education, healthcare	Production, facility maintenance
Vehicles	Delivery trucks, buses	Private logistics, public transport	Transportation, service delivery
Technology	Computers, servers	Education, IT, private businesses	Operations, data management

Fixed assets vs. current assets

There are differences between asset types. Fixed assets aren’t current. They are depreciable and considered illiquid. When they’re eventually disposed of through a sale, it is recorded as a capital loss or profit. Conversely, current assets are considered liquid and include inventory, cash, or cash equivalents. These assets are held less than one year and aren’t depreciable. 

Fixed tangible assets vs. intangible assets

An organization manages more than just a fixed tangible asset. Understanding the difference between fixed tangible assets and intangible assets is crucial. While both asset types add value, they differ in their characteristics, accounting treatment, and management requirements.

Fixed tangible assets

Fixed tangible assets are physical items that are used in business operations and have a long-term useful life. These assets are essential for producing goods, delivering services, or maintaining business operations. Key characteristics include:

Physical form—Can be touched, seen, or measured

Depreciation—Subject to wear and tear, their value decreases over time through depreciation

Use in Operations—Actively used to support day-to-day activities

Valuation—Easier to appraise because of their tangible nature

Fixed tangible asset examples

These are likely the most commonly thought of assets. Some examples include:

• Real estate (e.g., offices, warehouses)
• Manufacturing equipment
• Company vehicles
• IT hardware (e.g., servers, computers)

Intangible assets

Intangible assets are non-physical, long-term resources that often increase an organization’s differentiators. They typically center around intellectual property, brand recognition, or contractual rights. They are conceptually even less liquid assets than tangible fixed assets. Some of they characteristics include:

Non-physical nature—Cannot be seen or touched but hold financial value

Amortization—Their value is reduced over time through amortization, similar to depreciation

Legal or contractual basis—Often protected by laws (e.g., patents, copyrights) or governed by agreements

Difficult valuation—Their worth can be subjective and influenced by market conditions

Intangible asset examples

These types of assets are more abstract than traditional fixed assets. Some examples include:

• Patents and trademarks
• Copyrights
• Software licenses
• Brand value and goodwill

Fixed asset management concepts

Discussing fixed assets is incomplete without mentioning how they’re managed and the concepts that impact organizations. Here are some of the pillars that make up fixed asset management.

Fixed asset useful life

A stark difference between tangible and intangible assets is in their useful lifecycle. The fixed asset useful life refers to the period an asset should remain functional. Understanding useful life is essential for:

• Determining depreciation
• Planning capital expenditures
• Accounting compliance

Fixed asset useful life ranges

Asset type	Expected useful life
Office equipment	3-7 years
Vehicles	5-10 years
Machinery	10-15 years
Buildings	30-50 years

Fixed asset policy

Fixed asset policies are critical for managing an organization’s property and equipment. They provide guidance for managing organization’s fixed assets throughout their lifecycle. Typically, they provide a framework for:

Acquisition

This is the first step of the asset lifecycle. Acquisition policies define how organizations purchase fixed assets. 

Maintenance

Maintenance is critical for prolonging the useful life of an asset. In an organization’s asset policy, organizations should define maintenance policies to ensure assets remain in good working condition.

Disposal

Disposal is the end of the asset lifecycle. In the policy, organizations should define guidelines for retiring or selling fixed assets.

Implementing a fixed asset policy promotes consistency, accountability, and compliance.

Fixed asset tagging

Tagging is a critical part of fixed asset management strategies. This concept gives organizations the ability to identify and track assets. Different methods of tagging include:

Barcodes

Barcodes are the lowest barrier to entry in asset tagging. As a result, they are low-cost and widely used.

RFID tags

RFID tags are also a popular method of asset tagging. They enable remote scanning and tracking.

QR codes 

QR codes are the modern equivalent of barcodes or RFID tags. They offer quick access to asset information via mobile devices.

Benefits of tagging

There are several benefits of using asset tagging methods. They include improved inventory, simplified audits, and enhanced asset tracking accuracy. 

Fixed asset tracking

Asset tracking ensures organizations document property and equipment location, condition, and usage. Comprehensive asset tracking ensures organizations maximize asset investment. Asset tracking best practices include:

Identification

Effective asset management starts with accurately identifying all organization assets. Employees should create a comprehensive inventory of every asset, from equipment and machinery to vehicles and infrastructure. Proper identification ensures organizations account for all assets. This, in turn, reduces oversight risk and enables better resource allocation.

Monitoring

This tactic involves continuously overseeing assets to ensure they remain optimally functioning and serve their intended purpose. Organizations that effectively monitor assets create better maintenance plans to identify potential issues early, reducing downtime and repair costs. 

Reporting

Reporting helps maintain compliance, supports decision-making, and improves operational transparency. Accurate and timely reporting allows stakeholders to understand asset status and make data-driven choices.

Fixed asset depreciation

Fixed asset depreciation calculates the gradual value reduction of an asset over its useful life. This accounting practice is crucial for accurate financial reporting and tax calculations.

Methods of fixed asset depreciation

There are several widely adopted methods for calculating asset or equipment depreciation. They include:

Straight-line depreciation—The most common depreciation method. It spreads asset costs equally every year

Declining balance depreciation—This method uses an accelerated depreciation system that expenses more during the first years an organization owns an asset

Production-based depreciation—Bases depreciation on the asset’s output or usage and calculates depreciation based on the value it’s creating for an organization instead of its service time

Time-based depreciation—Calculates depreciation based on an asset’s expected usage period

Why is fixed asset depreciation necessary?

It’s an essential part of maintaining financial compliance. Organizations must effectively depreciate asset costs and keep detailed accounting records. These are critical for financial reporting, tax compliance, and capital budgeting. After calculating depreciation, financial professionals can use the figure to calculate net fixed asset value. 

Net fixed assets and net fixed asset value

Net fixed assets represent the remaining value of a long-term asset after accounting for accumulated depreciation. They reflect an asset’s current worth on the balance sheet. This is a more accurate view of current financial standing.  

What to know about net fixed assets:

• Calculation—Financial professionals calculate net fixed asset value by subtracting accumulated depreciation from original purchase price
• Financial significance—Net fixed asset value provides insights into the remaining usable value of fixed assets
• Reporting—Net fixed assets are listed on financial statements under the fixed assets section

Fixed asset schedule

A fixed asset schedule is a detailed record of an organization’s fixed assets, including acquisition dates, costs, depreciation, and net book values. Its primary functions include:

• Supporting financial reporting
• Ensuring compliance during audits
• Facilitating long-term planning

How to maintain a fixed asset schedule

Fixed asset schedules are an important part of financial reporting and any asset management plan. To maintain them, organizations must regularly update records with new acquisitions and disposals. Then, include depreciation calculations at the end of each fiscal year. Typically, most use software to streamline the process.

Fixed asset register

A fixed asset register is a comprehensive database that records all fixed assets owned by an organization. The role these documents play in asset management include:

• Ensuring transparency 
• Aiding compliance with accounting and tax regulations
• Supporting audits and capital planning

Fixed asset report

A fixed asset report details each asset’s value, location, maintenance history, and depreciation. These documents are similar to asset inventories. However, they focus specifically on fixed, long-term assets.

This granularity is essential for financial reporting and fixed asset management. It also provides deeper insights into asset lifecycle management and financial impact. Types of reports include:

• Inventory reports—Track asset quantities and locations
• Maintenance reports—Record service history to optimize asset maintenance schedules
• Depreciation reports—Calculate asset depreciation to reflect accurate financial value
• Audit trail reports—Provide a history of asset transactions for accountability
• Disposal reports—Record details of asset disposal, ensuring compliance with disposal regulations
• Reconciliation reports—Match financial records with physical assets
• Capital expenditure reports—Track capital investments for financial planning

These reports are essential for informed decision-making and optimizing asset performance.

The importance of fixed assets

Fixed assets are an essential backbone of organizations. They ensure an operation functions as intended. Their management is necessary to extend lifespans and increase return on investment. 

Investing in a robust asset management strategy and tools ensures long-term organizational success. To effectively manage a diverse asset portfolio, leading organizations partner with effective fixed asset management software solutions.

For more information about asset management tools, here are some additional resources:

• Fixed Asset Management Software
• Enterprise Asset Management Software
• Government Asset Management Software
• School Asset Management Software