Legal Definitions - fixed asset

A fixed asset refers to a company's long-term tangible property that is used in its operations to generate income, rather than being held for sale. These assets are expected to provide value for more than one year and are not easily converted into cash or consumed during normal business activities. They are essential physical tools or infrastructure that a business relies on for its ongoing functions.

Here are some examples to illustrate what a fixed asset is:

• Example 1: Manufacturing Production Line

  A car manufacturing company invests in a new, highly automated assembly line, including specialized robots and conveyor systems, to produce its vehicles. This entire production line is a fixed asset.

  This illustrates a fixed asset because the machinery is a physical item (tangible), intended for long-term use (many years of vehicle production), directly contributes to the company's income generation by producing goods, and is not something the company plans to sell quickly or consume in its daily operations.

• Example 2: Hospital Medical Equipment

  A private hospital purchases a state-of-the-art Magnetic Resonance Imaging (MRI) scanner for its diagnostic services. This MRI scanner is a fixed asset.

  The MRI scanner is a fixed asset because it is a substantial piece of physical equipment (tangible) with a long lifespan, crucial for the hospital's core business of providing medical care and generating revenue, and it is not an item the hospital intends to sell as part of its regular business or consume quickly.

• Example 3: Restaurant Commercial Kitchen

  A restaurant owner installs a commercial-grade oven, industrial refrigerators, and custom-built stainless steel countertops in their new kitchen. These permanent fixtures and large appliances are fixed assets.

  These items are fixed assets because they are physical components (tangible) essential for the restaurant's operations, expected to last for many years, directly used to prepare food and generate sales, and are not inventory for sale or items that get used up quickly in daily cooking.