What are the  'Fixed Assets' for the purpose of building financial projections in a business plan?Are building improvements ie. HVAC, Grease Trap, Tiling, POS system, Alarm and Surveillance system...

What are the  'Fixed Assets' for the purpose of building financial projections in a business plan?

Are building improvements ie. HVAC, Grease Trap, Tiling, POS system, Alarm and Surveillance system etc.  considered fixed assets? What is the defining calibre?

Asked on by mhsent

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

All of the things you mention are fixed assets at least in the way the term is used in the United States.

Here, fixed assets are defined as assets that are not liquid (can not be easily converted to cash) and that are likely to last more than one year.  This is in contrast to assets that will be expended in the course of producing a good or service.

Given this definition, all of the things you mention would be considered fixed assets as they are important to the production of your good or service but are not consumed in that process.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Fixed assets are physical things owned by a business firm that is expected to be used in the business for some extended period are considered fixed assets. This would include things like land, building and machinery.

Fixed assets do not get consumed as they are used as compares to current assets which include assets like stock of raw material and finished goods, amount receivable form debtors, bank balance and cash.

Building improvements will be treated as fixed assets only when these amount to significant addition to the value of the building. In case there is no significant increase in the value of a building then these will be treated as building maintenance charges. Let us assume a hypothetical case in which a building gets damaged due to an earthquake. The expenses that will be incurred in repairing the building to its original condition will be treated only as maintenance charges, and therefor there will be no increase in the value in the book of accounts. However while repairing the building, some major improvements are also undertaken that increase the basic value of the building, then the additional expenses incurred in such improvement should be treated as investment in capital assets and the value of the building should be increased in the books of accounts accordingly.

However, to simplify the accounting process, very small expense on things that continue to give service for extended period are often treated as expenses rather than investments. For example, a stapler used in a office may by have a useful life of several years, but is not likely to be treated as an item of fixed asset.

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