What are Fixed Assets

The role of fixed assets is solely to enable or enhance business operations. Fixed assets are a charge to liquidity, regardless of asset financing.

Fixed Assets Defined

Also known as tangible assets or capital items, fixed assets are regarded as being essential to enabling or enhancing business operations. As they are not intended for resale; there are important cash flow considerations when investing in fixed assets and the cash and liabilities associated with that.

Fixed Assets and Liquidity

Because they are not regarded as cash convertible, fixed assets are termed as "illiquid."

While the cash element for fixed assets comes out of liquidity and cash flow it does not end there. Even if part or all of their cost has been covered by asset finance, cash in respect of repayments to be made over the next twelve months will be deducted from working capital / liquidity.

Depreciation

The cost of fixed assets are not charged directly against profits but gradually depreciated over a period of years instead.

The charge arising from the annual rate of depreciation you elect to apply against fixed assets does not represent their tax deductible charge however. In the UK for example depreciation is first added back to taxable profit to be replaced by capital allowances.

Depreciation is not intended to write down the value of a fixed asset in line with its estimated market value. The purpose of depreciation is to charge the cost of an asset's acquisition to profits over however many years it is intended for it to function in the business.

Balance Sheet Value

Most fixed assets, with the possible exception of company cars are likely to be objectively regarded as having little or no value in the event of a forced sale. The ratio between fixed assets and working capital in the balance sheet is extremely important therefore.

FAQs
How to calculate liquidity and short-term liquidity How to calculate markup and margin The Truth about Monarch Airlines Labour's Spending over 10 years from 2000 How to make profits and not run out of cash Credit Checking - How to Read Micro or Short Form Accounts Amortisation of Arrangement Fees for Long Term Loans BHS Profits Performance 2010 - 2014 BHS profits, liquidity and cash flows 2009 - 2014 How to Calculate a Free Cash Flow Forecast Campari: How to apply for a bank business loan What are Current Liabilities What are Current Assets Late Payers and Cash Flow What is Operating Cash Flow What is Working Capital How to Read a Balance Sheet Business Planning Cash Flow Calculator Short Term Liquidity Business Liquidity Corporation Tax is not Calculated on Net Profit Small Business Corporation Tax Cash Flow Calculator Using Figurewizard - VAT Using Figurewizard - Sales by Month Using Figurewizard - HP or Instalment Plan Budgets Using Figurewizard - How the budgeted cash flow forecast is calculated Using Figurewizard - Fixed Asset Budgets Using Figurewizard - Calculate Purchase of Goods Using Figurewizard - Forecasting Payments to Suppliers Using Figurewizard - How to Forecast Cash Collection Solvency and the Balance Sheet Property in the Balance Sheet Why Equity is a Liability Asset Management and Liquidity Selling Fixed Assets Contracts: Invitation to Treat What is Deferred Income Loss on the Sale of Fixed Assets Calculating Gross Profit Margin Profit and Loss Statement What is Operating Profit What is Net Operating Revenue What is Equity Profit on the Sale of Fixed Assets How Taxable Profit is Calculated What are Operating Overheads Overheads - Provisions Depreciation