What are long term assets?
They are also called non-current assets or fixed assets. Fixed assets are the “big things” in your company that you use to make or sell your service or products. Technically they are items that will generate income for a period of longer than one year.
Examples of fixed assets
These can range depending on the industry. Here are some examples:
In most companies, your computer used for business purposes.
The plumbing space, your car that you drive to clients carrying all the equipment etc. Maybe even the equipment itself.
Whereas, in the motor manufacturing industry, the machines used to put the car together.
Land and buildings are also an example.
How are long term assets treated in the books?
Long term 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.
What is depreciation? Depreciation is an allowance that allows you to get tax relief for a capital outlay. It essentially spreads the expense over the useful life. It gives you an expense in more than one tax year.
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.
Control of these assets is critical especially in a company that has a large number of them. Contact Bruce 081 529 5129 or bruce@bcas.co.za for more information or advice on this topic.