Fixed assets and depreciable assets are two very closely, interrelated items on a company's balance sheet. Let's define each and describe how they are the same and subtly different.
What are fixed assets?
A fixed asset is an asset purchased by a company that has a useful life of more than a single accounting period (generally one year) and is to be used for productive purposes within the business.
Fixed assets are not necessarily affixed to anything, nor are they necessarily tangible. For example, a chemical company may own the intellectual property of a specific chemical process used to produce a given compound. That process' useful life is greater than one year, and despite it being intangible, it would still qualify as a fixed asset. Likewise, a portable piece of equipment used by a construction company would be a fixed asset, even though it is not technically affixed to any structure.
By contrast, a company's inventory is not a fixed asset. Inventory is purchased not for productive use but for resale. Therefore, it should be considered a current asset and included in the company's working capital accounts, not as a fixed asset.
What are depreciable assets?
Depreciable assets are a subset of fixed assets. Because fixed assets have a useful life of more than one reporting period (again, generally defined as one year), the company must account for the cost of purchasing the fixed asset over its useful life. It does this with a process called depreciation for tangible assets or amortization for intangible assets. Any fixed asset that is subject to depreciation or amortization is considered a depreciable asset.
Say, for example, that a company purchases a vehicle. The company pays $10,000 for the vehicle, expects it to remain useful for five years, and after five years predicts that the vehicle will be worth $5,000. The vehicles loss of value over this time is a real cost to the company, but because it occurs over five years the company cannot simply show it as an expense all at once.
To account for this gradual loss of value, the company depreciates the cost of the vehicle by a certain amount each year until it reaches the end of its useful life. In this case, the vehicle is expected to lose $1,000 of value each year for the next five years. The company will therefore record a depreciation expense on the income statement each year for $1,000, and will reduce the vehicle's value on the balance sheet by $1,000 to balance the transaction.
Are there fixed assets that are not depreciable assets?
The majority of fixed assets are also depreciable assets, but there are exceptions. Land is the most common of these.
In general, the intrinsic value of land does not change. Therefore, there is no cost to the company for owning the land over time like there would be for other fixed assets like the vehicle described above.
In these cases, the company will not report any depreciation for the land over time, meaning the land is a fixed asset but not a depreciable asset.
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