What are fixed assets?

Fixed assets are physical items your business owns and uses for more than one year to earn revenue. Think of the oven in a bakery or the van a caterer uses for deliveries.

In accounting, they’re also called property, plant and equipment (PPE). They sit under non-current assets on your balance sheet, and useful life is what separates them from everyday expenses.

Why fixed assets matter for your business

Long-term assets shape your business’s value and how much you can borrow. Lenders often weigh them against your liabilities.

For Malaysian small businesses, fixed assets also affect your tax bill through capital allowances.

Key characteristics of fixed assets

These five characteristics separate long-term assets from everyday expenses.

Tangibility

Fixed assets have a physical form you can touch. Patents and goodwill are intangible assets, so they sit in a separate section of the balance sheet.

Long useful life

The item benefits your business for longer than 12 months. A laptop you’ll use for three years qualifies, while printer paper is an expense.

Held for use in your business

You buy these items to use in your operations. A furniture shop’s delivery van is a fixed asset, while the cars in a dealership’s showroom are inventory because they’re there to sell.

Capitalisation and depreciation

You capitalise the cost, meaning it goes on the balance sheet instead of into expenses straight away. Depreciation then matches that cost to the years the asset earns revenue.

Low liquidity

Turning a building or machine into cash can take months, which is why these assets are classed as non-current.

Criteria for capitalising fixed assets

Capitalising means recording a purchase as an asset, then expensing it over time. A purchase generally qualifies when:

it has a physical form
you expect to use it for more than one year
you’ll use it to produce goods or deliver services
you’re holding it for your own use instead of for resale
its cost is at or above your capitalisation threshold

Most businesses also set a minimum cost below which items are expensed straight away. According to AccountingTools, a capitalisation limit saves you tracking low-value items that barely affect your financial statements.

For example, with a RM1,000 threshold, you’d expense a RM150 office chair and capitalise a RM6,000 server.

Examples of fixed assets

What you hold depends on your industry. These categories appear most often on small business balance sheets.

Land used for business premises, such as a factory plot
Buildings, including offices, warehouses, workshops and shophouses you own
Vehicles, including delivery vans and motorcycles
Machinery and equipment, such as production lines and generators
Computers and IT hardware, including laptops and servers
Office furniture and fittings, such as desks and air-conditioning units
Leasehold improvements, meaning lasting renovations to rented premises

Capitalised software is an intangible asset, though many businesses track it in the same register.

Fixed assets vs current assets

Your balance sheet splits assets into non-current and current groups, showing how much money is tied up long term.

Current assets turn into cash or get used up within 12 months; fixed assets last longer
Current assets include cash, inventory, trade receivables and prepayments; fixed assets include machinery and buildings
Current asset balances move month to month; fixed asset values fall gradually through depreciation
Current assets fund day-to-day running costs; fixed assets build long-term capacity

Your current assets also drive your working capital. For more examples of each, read this side-by-side comparison.

How fixed assets are recorded on the balance sheet

Here’s how recording works from purchase to reporting.

Capitalising the cost

You record the full cost as an asset instead of an expense on your profit and loss statement. Include the purchase price plus costs to get it working, such as delivery and installation.

Where fixed assets sit on the balance sheet

They appear under non-current assets at net book value: original cost minus depreciation recorded to date.

In Malaysia, Malaysian Financial Reporting Standard (MFRS) 116 sets the accounting rules for these assets and follows the international standard IAS 16. Under IAS 16, you record land and buildings as separate assets, even when you buy them together.

Accumulated depreciation

Each year’s depreciation charge lowers the asset’s carrying value. The running total since purchase is accumulated depreciation, which sits against the original cost.

These entries also flow into your trial balance, so you can check the figures agree before year-end.

How to calculate fixed assets: gross vs net

Gross fixed assets are the total original cost of everything you’ve capitalised, and net fixed assets are that total minus accumulated depreciation. Follow these steps to work out both.

List every asset you still own, with its original capitalised cost
Add those costs together to get your gross figure
Add up the accumulated depreciation recorded against each asset to date
Subtract total accumulated depreciation from the gross figure to get your net figure

Say your printing business owns a RM80,000 press, a RM60,000 van, RM10,000 of computers and RM10,000 of furniture, totalling RM160,000 gross.

If accumulated depreciation totals RM45,000, your net figure, shown on the balance sheet, is RM115,000.

Depreciation of fixed assets

Depreciation spreads an asset’s cost across each accounting period you use it.

Why depreciation matters

Depreciation makes each period’s profit reflect the real cost of running your business. If you expensed a RM50,000 machine in one go, profit would dip sharply that year and look inflated afterwards.

Common depreciation methods

Choose the method that matches how each asset loses value. Small businesses commonly use these options.

Straight-line depreciation spreads cost evenly, so a RM50,000 machine with a five-year life depreciates by RM10,000 a year
Reducing balance depreciation applies a fixed percentage to the remaining book value, so early years carry more
Sum-of-the-years’-digits depreciation also front-loads the charge, using a fraction that shrinks each year
Units of production depreciation links each year’s charge to output, such as machine hours, as AccountingTools explains

Assets that don’t depreciate

Land is the main exception because it doesn’t wear out. If you buy property that includes land and a building, split the cost and depreciate only the building.

Depreciation and Malaysian tax: capital allowances

In Malaysia, accounting depreciation isn’t tax deductible, so you claim capital allowances instead, according to PwC Worldwide Tax Summaries. PwC lists a 20% initial allowance for most qualifying assets in the first year, plus an annual allowance on cost of:

20% for heavy machinery and motor vehicles
14% for general plant and machinery
10% for furniture and office equipment
20% for information and communication technology (ICT) equipment and software, which gets a 40% initial allowance

PwC also notes that small value assets costing up to RM2,000 each qualify for a 100% allowance. Under the same rules, the total is capped at RM20,000 per year of assessment, except for small and medium enterprises (SMEs).

The fixed asset lifecycle

Every asset follows the same path from purchase to disposal, and knowing each stage helps you plan ahead.

Acquisition

When you buy the asset, you record its full cost and choose its useful life and depreciation method.

Use and maintenance

Routine repairs are expenses, while improvements that extend an asset’s life or capacity are capitalised.

For example, replacing a worn tyre on your van is a repair. Fitting a refrigerated unit so it can carry chilled goods is an improvement.

Review and impairment

Review your assets at least once a year. If damage or obsolescence pushes an asset’s value well below its book value, record an impairment loss.

Disposal

When you sell or scrap an asset, you remove its cost and accumulated depreciation from the balance sheet. Any difference between the sale price and net book value is a gain or loss on disposal.

For tax, the sale can also create a balancing allowance or balancing charge, which adjusts the capital allowances you’ve claimed.

Fixed asset turnover ratio

This ratio shows how much revenue you generate from each ringgit invested in long-term assets. Corporate Finance Institute (CFI) calculates it as net sales divided by average net fixed assets.

For the average, add opening and closing net fixed assets and divide by two. If your printing business made RM460,000 in net sales on an average of RM115,000, your ratio is 4.

Each RM1 in assets supported RM4 in sales. Compare the result with your past years and similar businesses, since asset-heavy industries run lower ratios.

Fixed asset management for small businesses

A little structure up front saves you time at year-end and shows exactly what you own.

Keeping a fixed asset register

A register lists every asset with its description, purchase date, cost, depreciation method, useful life and net book value. It supports your accounts and capital allowance claims.

A fixed asset schedule is the summary version, grouping assets by category for your financial statements. InCorp Malaysia notes that companies must keep records for seven years under the Companies Act 2016, as must taxpayers under the Income Tax Act 1967.

Tracking depreciation

Accounting software with built-in fixed asset tools calculates and posts depreciation for you, keeping your balance sheet current.

Planning for replacements

Watching each asset’s remaining useful life lets you budget for replacements before they’re urgent. That helps most with vehicles and machinery, where a sudden breakdown could squeeze your cash flow.

Claiming capital allowances

Claim allowances for the year you buy and start using each qualifying asset, and file every invoice with your register.

Budget 2026 added a temporary accelerated capital allowance for qualifying spending between 11 October 2025 and 31 December 2026, according to KTP. KTP notes it covers heavy machinery, plant and general machinery from local manufacturers, plus ICT equipment and computer software.

KTP says you claim a 20% initial allowance and 40% annual allowance, so the full cost is written off within two years. With the window closing on 31 December 2026, talk to your accountant before you buy.

Manage your fixed assets with Xero

Clear records show what your business owns and when it’s time to reinvest.

With Xero, your asset register and depreciation stay up to date in one place, ready for your accountant. Sign up today to get one month free and see how much admin time you save.

FAQs on fixed assets

Here are answers to common questions about fixed assets for Malaysian small businesses.

Is land a fixed asset?

Yes, land your business owns and uses is a fixed asset. It isn’t depreciated, and it doesn’t qualify for capital allowances as plant or machinery.

Is software a fixed asset?

Purchased software is usually an intangible asset, which you amortise over its useful life. Software that’s essential to a piece of hardware, such as a machine’s operating system, is usually capitalised with that hardware.

Can fixed assets increase in value?

Land and buildings can rise in market value, but most small businesses keep them at cost less depreciation. Both MFRS 116 and the Malaysian Private Entities Reporting Standard (MPERS) allow a revaluation model, and the Malaysian Accounting Standards Board added this option for private entities when it amended MPERS in 2015.

Do sole proprietors need a fixed asset register?

A register is the simplest way for a sole proprietor to back up capital allowance claims if LHDN reviews a return. It also speeds up handing records to a tax agent.

What happens if you expense a fixed asset by mistake?

Your profit is understated that year and overstated later, and your capital allowance claim may be wrong. Fix it by moving the cost to the balance sheet and recording the depreciation you missed.

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Disclaimer

This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.

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