What Are Fixed Assets, How Are They Classified, and What Do Depreciation, Useful Life, and Net Book Value Mean?

The concept of fixed assets, their classification, and guidance on depreciation and useful life.

Details:

1. Definition of Fixed Assets:
   
   Fixed assets are tangible physical items owned by the entity that provide continuous economic benefits for future financial periods. They must be:

   • Measurable in monetary terms.
   • Not linked to non-measurable liabilities.
   • Intended for use for a period exceeding one financial period.

   Examples:

   • Land.
   • Buildings.
   • Machinery and equipment.
   • Vehicles.
   • Office equipment.

2. Classification of Fixed Assets:
   
   They are divided into groups according to:

   • Depreciation rate.
   • Useful life.

3. Key concepts related to fixed assets:

   • Depreciation:
     The cost of using an asset whose value decreases due to use during its useful life.
   • Useful life:
     The expected time the asset will be used or the number of units produced from it.
   • Net book value:
     The historical cost of the asset less accumulated depreciation.
   • Salvage value:
     The remaining value of the asset after its useful life has ended.

4. Types of Fixed Assets:

   • Non-depreciable assets:
     • For example: Land.
   • Depreciable assets:
     • For example: Buildings, machinery, vehicles.