Fixed Assets
Fixed assets are the long-life resources a business holds to use in its operations rather than to resell — land, buildings, plant, machinery, vehicles and equipment. They appear as non-current assets on the balance sheet, carried at cost less accumulated depreciation. They matter because they represent the productive capacity of the business and are written down over the years they are used, not expensed at once.
What Are Fixed Assets?
Fixed assets, formally property, plant and equipment, are the things a business buys to run itself for years — the factory shed, the machines inside it, the delivery vans and the office computers. What sets them apart is purpose and duration: they are held for use in producing goods or services, not for sale, and they deliver benefit over more than one accounting period, so their cost is spread through depreciation.
A Bengaluru manufacturer meets fixed assets from the day it commissions its first machine. Each is recorded in a fixed-asset register at full cost — price plus freight, installation and any duty — and then depreciated over its useful life. Because these assets are large and long-lived, errors in capitalising or depreciating them distort both the balance sheet and profit for years, which is why the register and its reconciliation matter so much at audit.
Key terms
- Current Assets — Short-life assets, the opposite of fixed assets.
- Current Liabilities — Near-term dues, shown against net fixed assets.
- Balance Sheet — Where fixed assets are presented as non-current.
How Fixed Assets Are Classified
An item is a fixed (non-current) asset if it will be used in operations beyond twelve months or the operating cycle; these calls show the test in action:
- Factory machine (10-year life) — Fixed asset — used to produce goods over many years, not for resale.
- Delivery van — Fixed asset — held for use in the business, depreciated over its useful life.
- Stock of goods for sale — Not fixed — it is inventory, a current asset, meant to be sold soon.
- Spare parts held for a machine — Usually current, but major spares expected to be used over years can be capitalised with the asset.
- Land held to resell (borderline) — If bought to develop and sell, it is inventory; if held for the business's own use, it is a fixed asset — purpose decides.
How Fixed Assets Work in the Books
A fixed asset runs from purchase to disposal through a tracked life:
- 1Capitalise at cost
On purchase, the asset is recorded at price plus freight, installation and duty in the fixed-asset register.
- 2Assign useful life
A useful life is set from Schedule II for the books, driving the depreciation charge.
- 3Depreciate each period
Depreciation is charged to the P&L and accumulated against the asset, reducing its carrying value.
- 4Revalue or impair if needed
If the asset's value falls below its carrying amount, an impairment is recognised under AS 28 / Ind AS 36.
- 5Derecognise on disposal
On sale or scrapping, the asset and its accumulated depreciation are removed and any gain or loss booked.
Fixed Assets: A Practical Example
| Particulars | Amount (INR) | Treatment |
|---|---|---|
| Machine price | 40,00,000 | Base cost |
| Freight and installation | 2,50,000 | Capitalised into the asset |
| Total capitalised cost | 42,50,000 | Recorded in fixed-asset register |
| Depreciation Year 1 (15-year life, SLM) | 2,83,333 | Charged to P&L |
| Carrying value end of Year 1 | 39,66,667 | Cost less accumulated depreciation |
A Bengaluru manufacturer buys a machine for ₹40,00,000 and spends ₹2,50,000 on freight and installation, so it capitalises ₹42,50,000 — not just the invoice price. With a fifteen-year useful life on the straight-line method, it charges about ₹2,83,333 of depreciation in the first year and carries the machine at ₹39,66,667. Expensing the freight instead of capitalising it would have understated the asset and overstated the first year's loss.
asset errors distort the balance sheet and profit for years:
Fixed Assets Under Indian Accounting Rules
Recognition and measurement of fixed assets follow AS 10 (Revised), Property, Plant and Equipment, for entities on Accounting Standards, or Ind AS 16 for entities on Ind AS — the revised AS 10 merged the old AS 10 and AS 6 (depreciation). Useful lives for the books come from Schedule II of the Companies Act 2013, and presentation as non-current assets follows Schedule III. Impairment is governed by AS 28 / Ind AS 36. Income tax depreciation is separate, computed on blocks of assets under Section 32 of the Income Tax Act 1961.
- AS 10 (Revised) / Ind AS 16 — Recognition and measurement of property, plant and equipment.
- Schedule II & III, Companies Act 2013 — Useful lives for depreciation and non-current presentation.
- Section 32, Income Tax Act 1961 — Block-of-assets WDV depreciation for tax, distinct from the books.
Common Mistakes With Fixed Assets
Fixed-asset errors distort the balance sheet and profit for years:
- Expensing capital costs — Charging freight or installation to expense understates the asset → capitalise all costs of bringing the asset into use.
- No fixed-asset register — Without a register, assets are untracked and untraceable → maintain and reconcile a register to the ledger.
- Using tax rates in the books — Applying Section 32 rates instead of Schedule II lives breaches the Companies Act → depreciate on useful lives for the books.
- Ignoring disposals — Leaving sold or scrapped assets on the books overstates totals → derecognise them and book the gain or loss.
Fixed assets are the long-life resources a business holds to use in its operations rather than to resell — land, buildings, plant, machinery, vehicles and equipment. They appear as non-current assets on the balance sheet, carried at cost less accumulated depreciation. They matter because they represent the productive capacity of the business and are written down over the years they are used, not expensed at once.
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Applicable framework: AS 10 (Revised) / Ind AS 16, Companies Act 2013 (Schedule II & III), Income Tax Act 1961 (Section 32). For general information only, not professional advice. Verify the current position for your entity before acting.