Fixed assets: what is it?
The assets side of a balance sheet shows fixed assets, which are all assets that serve the company in the long term. The decision as to whether an item should be booked into fixed assets or current assets is often dependent on the plans of the company’s management.
A machine that was manufactured in-house can be booked as fixed assets as well as current assets. The key differentiator here is management plans: will the machine be sold or will it stay with the company for longer?
This means, legally declared, that all economic goods belong to the fixed assets according to § 247 Abs. 2 HGB, which permanently remain in the company or serve it. This also includes intangible assets such as financial assets and property, plant and equipment.
The fixed assets are broken down as follows:
- Depreciable fixed assets:
This includes all economic goods (WG) whose use is limited in time, because they are subject to a consumption of value due to their use.
- The non-depreciable assets:
According to GRADINMATH.COM, this item includes all assets whose use is not subject to any time limit, as they are not subject to any depreciation due to use.
The depreciable fixed assets
The following assets in particular come into consideration as depreciable fixed assets:
- Technical equipment
- Operating and office equipment
- Special intangible assets such as patents or brands as well as goodwill
The non-depreciable fixed assets
In particular, the following assets come into consideration as non-depreciable fixed assets:
- Participations and other financial assets and other financial assets:
- Shares in corporations and / or partnerships
- Pecuniary claims
- Special intangible assets, such as burning rights or long-distance transport concessions
Switching between fixed and current assets
If the intention is to sell an asset from the fixed assets, it will remain there until its previous use has changed – even if the appropriate measures for the sale have already been taken. However, if the seller does not limit himself to the mere sale, but instead actively participates or influences the preparation of building land, for example, then the property will initially switch to current assets if the use remains unchanged. Conversely, a current asset must be assigned to fixed assets and written off, for example, when goods are no longer for sale but are used as exhibits.
Write off assets or fixed assets! – this is important to know
The value of buildings, machines, vehicles and operating facilities decreases every year due to wear and tear and also technical progress. The depreciation records the depreciation of the assets, the fixed assets and the current assets that are used in the company.
So that the financial position is correctly presented in the closing balance sheet , the annual depreciation must be deducted from the acquisition value. When choosing the depreciation method, commercial law and tax law allow a certain amount of leeway to make decisions. Those who write off correctly can save taxes. The reason for the claim is that replacement purchases have to be earned first.
What can be written off?
Assets whose value does not decrease over time are not depreciated and this includes, for example, undeveloped land or investments in non-depreciable fixed assets.
In the case of depreciable fixed assets, the depreciation is taken into account and then allocated to the individual periods. Factory and office equipment, plant and machinery and vehicles are subject to a faster depreciation (consumption) than immovable fixed assets, such as administration buildings, production halls and warehouses. In the case of bad debts, these are to be written off in full and the dubious debts partially.
The acquisition costs and the depreciation
If capital goods are acquired, then this incurs acquisition costs . This consists of the purchase price and the ancillary acquisition costs such as assembly costs and freight. The depreciation of the acquisition and production costs is spread over the years in which the asset can be used. The impairment is recorded by depreciation and thus causes a reduction in the book value of the asset. However, since the loss in value can only be estimated, the depreciation of fixed assets is only an estimate. This means that the residual asset value of an asset is only an estimate on the balance sheet .
The calculation of the cost of the asset to be depreciated
- The fixed assets serve the company permanently.
- The posts of the AV
- Intangible assets
- Property, plant and equipment
- Financial assets
The determination of the acquisition costs
Depreciation of fixed assets: what causes them?
- By using the item. This leads to natural wear and tear and thus to a depreciation due to use.
- Through technical progress. This leads to technically improved production systems or machines and the old systems and machines lose their value.
- Shifts in demand also lead to a decrease in value. It is about the fact that some products lose favor with buyers. This also has an impact on the production systems and machines.
- Natural wear and tear can also be determined when an asset is no longer used. This then loses value as a result of the weather and / or aging.
The official Afa table
It is important to know that fixed assets can only be depreciated over a limited period of time. This means that the amount of the depreciation depends on the “technical useful life” and that means how long the asset can be used in all probability. For this purpose, the Federal Ministry of Finance created an official depreciation table in which the generally usable assets are listed. There are also special sector-specific depreciation tables for individual branches of industry. If there is a shortening of the depreciation or the officially specified useful life in the income-surplus-account , this must be justified exactly to the tax office – for example due to a technical overhaul.