3.4 : Fixed Assets

A fixed asset is a long-term resource that a company owns and uses to generate income.

They are crucial components on a company's balance sheet, reflecting significant investment to purchase them.

Machinery, buildings, land, and vehicles are fixed assets purchased for long-term use, typically more than one year.

These assets are not meant for resale in the regular course of business and are used in the company's production, supply chain, or administrative functions.

A cheese manufacturer purchases packing machinery to use it for five years.

The machinery is a fixed asset for the company and provides long-term value.

The cost of the machinery includes its purchase price, transaction fees, installation costs, and any other expenses incurred to make it suitable for use.

At the time of purchase, the machinery will be recorded on the balance sheet at its purchase cost. Over time, the machinery will depreciate, reducing its book value.

Packing machinery is a long-term resource owned and utilized by the business to generate income.