What is a Fixed Asset?
A fixed asset is a long term part of a property that a company holds and generates revenue and it is not estimated that the cash or will come in the next one year. A specific case of fixed asset is the plant's plant resource, for example, its structure and the hardware "fix" indicates that these properties will not be sold in the current bookkeeping year.
Suppose the ABC firm is planning to buy office worth 20 lakh rupees. The building has a physical shape, it lasts for more than a year and produces income, making it a fixed asset. Thus, the ABC firm will now have a place from where they can maintain their business operations and are fully responsible for the building.
Fixed assets include any asset that the organization does not directly sell to the customer. It may be furniture, engine vehicles, PCs and more, suppose that its cost is approximately five lakhs.
Thus, the ABC firm acquired a certain asset 25 million, and it will also show in their balance sheets. It is useful in calculating the total assets of the fixed asset company.
Learn more about depreciation
Since the value of the property is weak because it is used because it is offered as age or latest models, hence it is important for the firm to devalue and track from the time of purchase. Fixed assets are included in the asset's report in their initial expenditure, and after its devaluation, all are sold during their lifetime, as long as they pray on accounting reports in their residual respect.
Accounting for Fixed Assets
If your business has a certain asset, then voice accounting standards can be filled in the manual to record these long run stuff properly on their bookkeeping records. Special exchanges, which influence capital to include asset purchase, re-evaluation, depreciation and sales. This depreciation is important for the accuracy of your business's financial records and reports.
What is the Fixed Asset Turnover Ratio?
Fixed Assets Turnover Ratio is an activity ratio that measures how an organization has used its fixed resources in producing income. Financial Experts use this equation to see how well the organization is utilizing their equipment and equipment for the production of sales. This idea is mandatory for financial experts because they have the ability to find an exact benefit for their enterprise.
Look at this formula:
Fixed Assets Turnover Ratio = Net Revenue / Total Fixed Assets
Where net revenue = gross revenue - sales return
Total Fixed Assets = Fixed Assets - Total Depreciation
For example, consider the above example of ABC firm with a fixed asset of 2.5 million and the cost of the fall is five million annually. Consider their net revenues: 50 lakhs If we calculate turnover ratio of fixed assets for ABC firm, then it may be 2.5. This ratio is considered as an important factor for investors.
Types of Fixed Assets
Fixed assets are classified into two main types: see tangible and intangible assets in detail in both of these.
Tangible assets
Tangible assets are assets which is used can touch and fell like furniture machines etc.
For example, some immovable properties appreciate land or structure and there is no shortage of term for long term. You also have to consider this factor in your balance sheet.
Intangible assets
If you ever want to sell, you can include goodwill, license, registered or trademarked names, and even phone numbers, any innovations, and websites. For properties like phone numbers and trademarks or patented things, value is difficult to determine
Goodwill is an elusive resource, and this type of property is easy to calculate in order to find the difference between the actual costs and costs of organizations, on which it is sold or bought. Most of the other intangible resources are difficult to assess.