What are fixed assets?
Fixed assets are also called non-current assets or even capital purchases. These are items in your business that will generate income for a period longer than one year. They are all the “big things” in your company that you use to make or sell your service or products.
Examples of fixed assets
These can range depending on the industry. Here are some examples:
In the advertising space, your computer used to design or create.
The plumbing space, you car that you drive to clients carrying all the equipment etc.
Whereas, in the motor manufacturing industry, the machines used to put the car together.
Land and buildings are also an example.
You can see what I am getting at here.
How are fixed assets treated in the books?*
Fixed assets are balance sheet items and are placed in the assets section under Assets – Non-current assets. These assets are depreciated over their useful life according to the rate determined by SARS or the company. Example, computers are depreciated over three years. Depreciation is an allowance that allows you to get tax relief for a capital outlay.
Example? You buy a piece of machinery for R 100 000. SARS allow you to spread that expense over the useful life, say 5 years. This will give you R20 000 a year for 5 years as a tax deduction.
There is a minimum value to the asset in order to be depreciated. This amount is R7 500. Any asset value under R7 500 should be depreciated over one year. This means that it will be classed as an expense in the income statement.
A register of all assets should be kept as a record for the company. These can be assets of any value and is at the discretion of the company. This register is kept as a record of the assets and the depreciation rates and accumulated depreciation so far.
*These are examples for South African taxpayers. Whilst the accounting is accurate in most countries, the tax treatment may differ. Please confirm the tax details in your country.