The balance sheet presents a company’s assets, liabilities, and equity. Usually, these elements appear after some adjustments to the costs or base amounts. With fixed assets, the presentation occurs net of various figures. This presentation is known as the net of fixed assets. Before discussing the net of fixed assets presentation, it is crucial to understand fixed assets.
What are Fixed Assets?
Fixed assets are tangible resources that companies maintain for a year or longer. These are non-current assets that companies acquire to use in operations. Usually, companies purchase these assets for the long run. Similarly, they have specific goals when acquiring fixed assets. Also known as capital assets, these resources play a crucial role in helping companies operate and generate revenues.
Fixed assets have a useful life of at least a year at acquisition time. These assets do not come from within the business. Usually, they require a capital investment before acquisition. Fixed assets can include many resources. Companies use these assets to manufacture products or render services. However, the structure may differ from one company to another.
Some examples of fixed assets may include the following.
- Land used for business.
- Office or factory building.
- Machines used in production.
- Vehicles used in delivering products or office use.
What is Net of Fixed Assets?
Net of fixed assets represents the carrying value of these assets on the balance sheet. It refers to the total fixed asset costs minus depreciation on those assets. On top of that, it also reduces any related liabilities. Essentially, the net of fixed assets accounts for the decrease in the value of fixed assets to represent the actual value of those assets in the financial statements.
Net of fixed assets shows the gross value of fixed assets in the balance sheet after adjustments. It includes removing any accumulated depreciation expenses from that value. Furthermore, it also accounts for any impairment that may have occurred on the asset's value over time. Lastly, it also accounts for any debts or liabilities pertaining to those assets.
How to calculate the Net of Fixed Assets?
Companies can calculate the net of fixed assets by considering all the elements above. These elements account for all the reductions necessary to report fixed assets accurately. Overall, the formula for the net of fixed assets is as below.
Net of fixed assets = Gross amount of fixed assets - Accumulated depreciation - Accumulated impairment - Debt or liabilities related to assets
Example
A company, Red Co., has a gross amount of fixed assets in its accounts totaling $500,000. The accumulated depreciation and impairment for those assets amount to $100,000 and $50,000, respectively. On top of that, Red Co. also has debt worth $30,000 associated with those assets. The company reports its net of fixed assets in its accounts as follows.
Net of fixed assets = Gross amount of fixed assets - Accumulated depreciation - Accumulated impairment - Debt or liabilities related to assets
Net of fixed assets = $500,000 - $100,000 - $50,000 - $30,000
Net of fixed assets = $320,000
Conclusion
Fixed assets are long-term resources companies use to generate revenues. When reporting these assets, companies make various deductions to reach the net of fixed assets. Usually, they include adjusting for depreciation, impairment, and debt related to those assets. The net of fixed assets allows companies to report an accurate amount on the balance sheet.
Originally Published Here: Net of Fixed Assets: Definition, Formula, Examples, on Balance Sheet
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