Fixed Assets – Meaning, Explanation with Examples

Meaning of Fixed Assets

Those assets on which the business will get benefits for a long period of time i.e. minimum of one year are known as Fixed Assets. These are also known as long term assets or non-current assets.

In other words, on the basis of convertibility, those assets which cannot convert easily within the year known as fixed assets. It takes a long time to utilize, consumed or convert into cash i.e. more than one year. 

Examples are as follows: –

  • Land and Building 
  • Furniture and Fixture 
  • Plant and Machine
  • Office Equipment
  • Office Computers and Laptop
  • Vehicles
  • Leasehold Equipment
  • Electronic Fitting
  • Long term Investment
  • Computer Software 
  • Patent
  • Copyright
  • Trade Marks
  • Trade Name

Type of Fixed Assets: –

These assets can be further divided into two categories bases of Existence of an asset, these are shown as follows: –

1. Tangible Fixed Assets 

Those assets which can be touch, feel, and see are called Tangible Fixed asset.

Examples are as follows: –

  • Land and Building 
  • Furniture and Fixture 
  • Plant and Machine
  • Office Equipment
  • Office Computers and Laptop
  • Vehicles
  • Leasehold Equipment
  • Electronic Fitting

2. Intangible Fixed Assets 

Those assets which cannot be touch, feel, and see are called intangible Fixed asset.

Examples are as follows: –

  • Computer Software 
  • Long term Investment
  • Patent
  • Copyright
  • Trade Marks
  • Trade Name

Importance of Fixed Assets: –

These assets play a very important role in the growth of business enterprises. These are most important in the manufacturing industries.  There is some importance of the Fixed Assets shown as follows: 

Revenue Generation: –

These assets play a vital role in the generation of revenue for the business. Mostly in the Manufacturing Businesses. If we want to produce goods, we need a tool, plant and machinery with plant and machine we cannot produce goods. 

Growth of Business: –

These assets play a very crucial role in the Growth of business enterprises. Because business gets funded against their assets if a business has more assets then it can raise more fund from the market for expansion of the business and vice versa. 

Stability:-

These assets also help the business to get financial stability because these type of asset cannot be converted into cash easily and have a real value. 

Create an Entry Barrier: – 

These type of assets help the business to create an entry barrier for the new business to get in the competition. So, In the capital intensive businesses if the business holds a huge value of assets then it is very difficult for a new business to maintain this type of value of assets so assets create an entry barrier for them. 

Helping in Investment decisions 

To know the actual position of any business we have to check out the all fixed assets with other factors, so if the business has more assets as compared to their liabilities then it called that business is in a good financial position and vice versa. 

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