Fixed Assets: Definition, Types, Characteristics, and How to Acquire Them

As a business actor, it’s normal to struggle with numbers and also calculations and various kinds of business terms, right? For example, when ordinary people only know the term wealth to refer to assets that a person owns, business actors will actually be more familiar with the term fixed assets.

In that sense, fixed assets and wealth do have a lot in common. However, when talking about fixed assets, there will be a series of specific things that make the meaning more than just wealth.

Assets or what is usually referred to as assets are assets that are a company’s economic resource that are used for the company’s operational activities.

According to the Financial Accounting Standards, in the framework of the preparation and presentation of financial statements (2002, page 13, paragraph 49), assets have the meaning of resources controlled by the company as a result of past events and from which future economic benefits are hope the company will get it. In general, these assets are divided into two, namely current assets and fixed assets.

Definition of Fixed Assets

Assets or assets are property that is one of the company’s economic resources used for the company’s operational activities. According to the Financial Accounting Standards, within the basic framework for the preparation and presentation of financial statements. To be able to produce a product, the role of this asset is very large. For example, land as a place for production, buildings used for factories or offices, machines and equipment as tools for production and so on.

To understand this fixed asset, there are several opinions expressed by experts, including:

According to the statement submitted by Financial Accounting Standards (PSAK) Number 16 paragraph 5 states that “Fixed assets are tangible assets that are acquired in ready-to-use form or built first, which are then used in company operations, not intended to be sold in the course of the company’s normal activities. and has a useful life of more than one year.

From the explanation above, we can conclude that fixed assets are:

– Is a tangible asset
– Has a useful life of more than one year
– Is used in the company’s operations
– Not intended to be resold

 

Fixed Assets Grouping

These assets are divided into several groups because they have different characteristics from other assets. The criteria itself consists of various types of goods. Therefore, further grouping of these assets is carried out.

This grouping depends on the accounting policies of each company. Because basically the more fixed assets owned by a company, the more groups there will be. Fixed assets owned by a company consist of various forms. Depending on the nature and also the field of business occupied by the company.

The value tends to be large and the types and forms that vary from this type of asset will cause companies to be more careful in classifying them. Of the various assets, for accounting purposes will be grouped as follows:

a. Which is usually unlimited, such as land for the construction of companies, livestock, and agriculture.
b. Which are usually limited and when their useful life has expired can be replaced with similar assets, for example, machines, buildings, tools, furniture, and others.
c. Which are usually limited and when they have expired they cannot be replaced with similar assets, for example, natural resources such as mining products and so on.

Based on the Angle of the Substance

According to Sofyan Safri H, fixed assets can be grouped in various angles, including:

a. Tangible Assets or tangible assets such as machinery, land, equipment and buildings.
b. Intangible Assets or intangible assets such as patents, copyrights, franchises, goodwill, copyrights, and so on.

Based on Angle Shrinkage or Not

The following is a grouping of fixed assets based on whether they are depreciated or not, including:

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a. Depreciated Plant Assets: depreciated assets such as buildings, equipment, machinery, inventory, roads, and so on.
b. Undepreciated Plant Assets: assets that cannot be depreciated such as land.

 

Types of Fixed Assets and Examples

The types of assets can be divided into two groups, namely tangible or tangible and intangible or intangible. The following is a full explanation.

1. Tangible Fixed Assets

This type of assets includes assets that can have a tangible form so that they can be seen. For example, land, buildings, machinery, factories, and equipment. The period of use of tangible fixed assets is more than one accounting period. Tangible fixed assets can be divided into two groups, namely those that can experience depreciation or depreciation and those that cannot experience depreciation. Here is the explanation:

a. Land

Land has a form and will not experience depreciation. The acquisition price of this land includes the purchase price, certificate processing fees, commission fees, and land leveling costs.

b. Building

Buildings or buildings are included in the group of tangible fixed assets and can be depreciated. There are two ways to acquire buildings, namely through construction or purchase. The cost of acquiring a building by way of construction is the cost of the services of architects and contractors, material costs, construction worker costs, and building permit fees. Then the cost of acquiring the building purchased includes the purchase price of the building, intermediary commissions, certificate processing fees, tax costs, and also renovation costs.

c. Machine

As we know that the machine is real and can experience depreciation. The acquisition price of this machine includes the purchase price, shipping costs, installation costs, value added tax, as well as insurance costs.

2. Intangible Fixed Assets

Intangible assets are company assets that do not have a tangible form with a useful life of more than one year. The right or advantageous position for the company in earning income can be seen from this wealth. For example:

a. Patent

Patents are exclusive rights originating from the state to inventors for inventions in the field of technology to be used later in the production or sale of a product for a certain period. Where this patent provides legal protection to the owner of the right from the possibility of product imitation or counterfeiting by other parties. Patents can be obtained by purchasing or self-developed.

b. Goodwill

Goodwill is the difference in value of the accounting costs or the acquisition of a company with a fair market price or the book value of the company. Where this goodwill becomes an integral part of the corporate entity. So it cannot be sold separately. The factors that form goodwill include good reputation, well-known brand identity, strategic business location, employee competence, and also the technology used.

c. Licence

License is official permission obtained to do, use, produce, and also own something. Where this license can be in the form of permission to use trademarks, intellectual property rights, and also permits to sell products abroad. Licenses can be obtained by purchasing or submitting an official application to the government with or without a fee.

d. Copyright

Copyright is a right for intellectual work in the fields of science, art, and literature that is unique and is given based on ideas, methods, procedures, or concepts that have been realized. For example, copyrights on computer programs, maps, books, and photography.

 

Characteristics of Fixed Assets

As one of the assets or wealth owned by a company, fixed assets certainly have characteristics that distinguish them from other types of assets. According to Agus Ismaya Hasanudin in Accounting Theory, the characteristics of fixed assets are as follows:

a. Fixed assets are acquired for later use in operations and not for resale.
b. Fixed assets have a long-term nature and generally experience depreciation.
c. Fixed assets have physical substance.

Acquisition of Fixed Assets and the Method of Recording

Below are some explanations about how to get fixed assets or fixed assets:

1. Cash Purchase

Fixed assets obtained from cash purchases are recorded in the books with an amount equal to the money issued. The amount of money spent to acquire the asset includes the price listed on the invoice as well as all costs incurred to get the fixed asset ready for use. If there is a cash discount in the purchase of an asset, then the discount is a reduction to the invoice price, regardless of whether the discount is obtained or not.

If in a purchase obtained more than one type of fixed assets, then the acquisition price must be allocated to each product. For example, when buying a building and land, the acquisition price is allocated for the building and land. The allocation basis used is as much as possible based on the market price of each asset, namely in the case of purchasing land or buildings, the market price of the land and the market price of the building must be sought. Where each market price is compared and becomes the basis for the allocation of the acquisition price.

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2. Installment Purchase

If fixed assets are obtained from installment purchases, then the acquisition price may not include interest. Interest made during installments, whether expressly stated or not stated separately, must be removed from the acquisition price and then charged as interest expense. The method of recording is that every year payments are made in a journal that reduces the debt to the amount of the loan principal repaid and debits the interest fee for the year concerned and cash credits in the amount of installments.

3. Exchanged with Securities

Fixed assets obtained by exchanging bonds or company shares are recorded in the general ledger at the market price of the shares or bonds used as exchange. If the market price of a stock or bond is not known, the acquisition price is determined by the market price of the asset.

If the market price of the securities and fixed assets being exchanged is not known, then under these conditions the exchange value will be determined by the decision of the company’s leadership. This exchange value is one of the bases for recording the acquisition price of fixed assets and also the valuable values ​​issued.

The exchange of fixed assets with bonds or company shares will be recorded in the Share Capital or Bonds Payable account in the amount of the nominal value. The difference between the exchange value and the nominal value is recorded in the Disagio or Agio account.

Fixed assets, for example machine xxxx
Capital xxxx
Agio Shares xxxx

If in this exchange the company adds a down payment. Then the acquisition price of the machine is the sum of the money paid plus the market price of the securities used as exchange.

4. Exchanged with Other Fixed Assets

Many purchases of fixed assets are made by way of exchange or trade-in. Where old assets are used to pay for new assets, either in whole or in part where the shortfall is paid in cash. Under these conditions, the principle of acquisition cost must still be used, that is, new assets are capitalized at an amount equal to the price of the old assets, then cash paid or capitalized equals to the market price of the new assets to be received.

5. Obtained from Gifts or Donations

Fixed assets obtained from gifts or donations can be recorded deviating from the cost principle. To be able to receive these gifts costs are often incurred, but these costs are much smaller than the value of the fixed assets received.

If fixed assets are recorded at the cost already incurred, this will cause the amount of assets and capital to be too small and the depreciation expense to be smaller. To overcome this, assets received as gifts are recorded at market value. Depreciation or depreciation of fixed assets received from the gift will be calculated in the same way as the others.

6. Self Created Assets

Through certain considerations, companies often make their own assets or fixed assets needed, such as buildings, tools, and also furniture. The creation of these assets is generally intended to fill capacities or employees who are still idle. All costs charged for manufacturing assets such as materials, direct wages, and direct factory overhead will not cause problems in determining the cost of fixed assets made.

However, indirect factory overhead costs will raise questions about how much should be allocated for the assets being made. There are two ways to charge factory overhead costs, including:

a. Increase in factory overhead costs charged to assets created.
b. Factory overhead costs will be allocated at rates for manufacturing assets as well as production.

This is an explanation of the meaning of fixed assets and their various types and classifications. Hopefully the information described above can be well understood and provides benefits for the business being managed.