Fixed assets: importance and benefits

Fixed Assets: Importance and Benefits

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What do you understand by Fixed Assets?

Fixed Assets are material assets that include land, building, furniture, vehicle, plant and machinery which are used to generate revenue. These are long-term assets that have a life expectancy of several years and cannot be converted into cash easily. Valuation of fixed assets speaks about the financial growth of the company.

It is vital to keep a track of all the permanent assets that may help in getting fair price during mergers and acquisitions.

What are the types of fixed assets?

Generally, fixed assets are of two types: Tangible and Intangible.

Tangible assets: Physical assets like land, building, equipment, vehicle, plant and machinery and such.

Intangible assets: They exist as patent, copyright, trademark, innovations, etc.

Why is it important?

1. Fixed assets are the most important assets that make a business model work.

2. Fixed assets are resources purchased by industrial companies or enterprises that have long-term value.

3. There are fixed assets that depreciate with value, this leaves businesses to pay for fixed assets. This helps to retrieve the initial cost and generate income. Š Rakesh Narula & Co. All rights reserved.

4. Fixed assets are the representation of total assets owned by the entrepreneur.

5. Valuation of fixed assets hugely influences the capital of the company which improves the overall financial status of the organization.

6. Tax benefits can be availed in case of depreciation of assets.

What do you understand by depreciation?

Depreciation is termed as the reduction of recorded cost of fixed assets in a systematic manner until its value becomes zero or negligible. It is done to calculate how assets affect the profit and loss statement of the company.

It is shown in the financial report to match the cost of the fixed asset with its productive life to the revenues earned by the business entity.

What are the benefits of fixed assets?

Makes your business viable It is the value of fixed assets owned by an organization and profits made through it annually.

Leads to profit Return on Assets (ROA) shows the percentage of how profitable the assets are in generating revenue. The company’s profit depends on the return obtained from assets.

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Learn about your company’s efficiency Fixed asset turnover is the ratio that shows how efficiently sales are generated from its fixed asset investment. After investments, the company should keep track of the income generated.

Conclusion Valuation of fixed assets is necessary to keep a close track of the company’s revenue generated through assets. The entire class of assets needs to be revalued to get the true value of assets. If you are finding for professional advisors, trust the most experienced consultants at Rakesh Narula & Co.

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