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Running a business:
Fixed assets

For accounting purposes, fixed assets are included on the balance sheet, but their value is reduced each year by a depreciation charge, which is a measure of how much the asset has fallen in value during the year. The value of the asset remaining in the balance sheet is called the 'net book value'. Typically assets are written off over a fixed period and so you may decide, for example, that your computers will be worthless after four years.

As an example, if you were to spend �2,000 on a computer then in the first year your accounts would show depreciation of �500 and a net book value would then be �1,500. After the second year there would be a further depreciation charge of �500 and the computer would have a net book value of �1,000. If you then sold the computer for �1,200 this would be shown as a reduction of the net book value to nil and a profit on sale of �200.

You should keep records that prove your ownership of fixed assets, such as purchase contracts and vehicle registration documents. You should also note whenever assets have been sold or scrapped. Fixed assets are often mis-classified as 'repairs and renewals' and so we recommend that you also keep details of these expenses.

It is good practice to keep a fixed asset register. This is basically a list of all the assets that a business owns, with further useful details such as:

a description of the asset

when the asset was bought

how much it cost

how much depreciation has been charged against the asset

location of the asset

These details are helpful for tax purposes (such as the date when you bought the asset and how much it cost), but you might also want to keep other details such as those associated with warranties.