What are fixed assets?

Under AASB 116 (Property, Plant and Equipment) an item is recorded as a fixed asset when it is probable that future economic benefits will flow to the business and its cost can be measured reliably. The cost includes the purchase price less trade discounts and rebates, plus import duties and non-refundable taxes, and anything directly needed to get the asset working: delivery, installation, testing and related professional fees. Routine repairs, maintenance and staff training are expensed instead. The practical test is whether the spend materially extends the asset's life, capacity or performance.

After that, most small and medium businesses use the cost model: carrying amount equals cost less accumulated depreciation and impairment. The alternative revaluation model carries assets at fair value, which suits property-heavy businesses but needs regular valuations, more disclosure and must be applied to whole asset classes.

Depreciation spreads the depreciable amount (cost minus residual value) over the asset's useful life. Straight-line, which the ATO calls prime cost, charges the same amount each year. Diminishing value charges more in the early years. Units of production ties the charge to machine hours or output. For tax, the ATO sets its own methods and effective lives, and small business concessions such as the instant asset write-off may apply, subject to the current thresholds and eligibility rules.

If there are signs the carrying amount is no longer recoverable, such as a fall in market value, a technology shift or physical damage, the asset is tested for impairment under AASB 136 and written down to its recoverable amount. On sale or scrapping, the cost and accumulated depreciation are removed, the gain or loss is the proceeds minus the carrying amount, and a tax balancing adjustment may apply under the capital allowances rules.

Current assets such as cash, inventory and receivables are expected to turn into cash within 12 months. Fixed assets are non-current: they stay in the business for years. Other non-current assets, such as long-term investments, deferred tax assets and intangibles with an indefinite life, sit in their own category.

The split matters because it drives working capital and liquidity ratios, decides which items are depreciated and impairment-tested, and tells investors how capital-intensive the business is. Fixed asset turnover (revenue divided by average net fixed assets) shows how efficiently the assets are being used, and net fixed assets are simply gross cost less accumulated depreciation. Where an asset is financed, the lease or loan terms are disclosed alongside it, which is where equipment finance options come into the picture.