Fixed assets
What fixed assets are, with examples, depreciation, and how they sit on your balance sheet.
Published Monday 31 August 2026
Table of contents
Key takeaways
- Fixed assets are long-term physical resources your business owns and uses to earn income, such as equipment, vehicles, and property. On the balance sheet they appear as property, plant and equipment (PP&E).
- Unlike current assets, fixed assets aren’t held for sale in the normal course of business. They stay on your balance sheet for more than 12 months and lose value over time through depreciation.
- In the Philippines, the Bureau of Internal Revenue (BIR) lets you deduct depreciation on business assets, so accurate records shape both your financial reporting and your tax.
- Keeping a fixed asset register and tracking depreciation helps you plan replacements, manage cash flow, and stay compliant at year end.
What are fixed assets?
Fixed assets are long-term tangible items your business owns and uses to operate and earn revenue. You buy them to use over several years, not to sell on quickly.
In accounting, fixed assets are often called property, plant and equipment (PP&E). You’ll find them listed under non-current assets on your balance sheet, where they represent a large investment and support your day-to-day operations.
Common examples include office buildings, delivery vans, manufacturing machinery, and computer equipment. What makes something a fixed asset rather than an everyday expense is its useful life: if you expect to use it for more than a year, it’s usually classed as a fixed asset.
Why fixed assets matter for your business
Understanding your fixed assets gives you a clearer picture of what your business is worth. Their value affects your balance sheet, your borrowing capacity, and the decisions you make about investing and growing.
Fixed assets also have tax consequences in the Philippines. You can generally deduct depreciation on assets used in your trade or business, so getting the accounting right from the start saves time and avoids problems when you file with the BIR.
Key characteristics of fixed assets
Not every purchase counts as a fixed asset. A few characteristics set fixed assets apart from day-to-day expenses and other items on your balance sheet.
Tangibility
Fixed assets are physical items you can see and touch. This sets them apart from intangible assets such as patents, trademarks, and goodwill. If it has a physical form and your business uses it over the long term, it’s likely a tangible fixed asset.
Long useful life
A fixed asset is expected to provide economic benefit for more than one accounting period, which usually means longer than 12 months. A laptop you’ll use for three years is a fixed asset; a pack of printer paper you’ll use this week is not.
Not intended for resale
Your business buys fixed assets to use them, not to sell them on. A delivery truck used to move goods is a fixed asset. But for a vehicle dealership, the vehicles on the lot are inventory, not fixed assets, because they’re there to be sold.
Capitalisation and depreciation
When you buy a fixed asset, you capitalise the cost rather than expensing it straight away. The purchase price goes onto your balance sheet as an asset, and you write off the cost gradually over the asset’s useful life through depreciation. This matches the expense to the periods in which the asset earns revenue.
Illiquidity
Fixed assets aren’t easy to convert to cash quickly. Unlike money in the bank or unpaid invoices, selling a machine or a building takes time and effort. That’s why they sit in the non-current section of your balance sheet.
Examples of fixed assets
Fixed assets span a wide range of items depending on your industry and business type. Here are the most common categories you’ll come across as a small business owner.
- Land: plots owned for business use, which is unique because it doesn’t depreciate
- Buildings: offices, warehouses, workshops, and retail premises your business owns
- Vehicles: delivery vans, company cars, trucks, and other transport used in operations
- Machinery and equipment: manufacturing machines, construction equipment, and production tools
- IT and computer equipment: laptops, desktops, servers, printers, and networking hardware
- Office furniture and fittings: desks, chairs, shelving, and lighting
- Tools and instruments: specialised hand tools, measuring devices, and diagnostic equipment
- Leasehold improvements: renovations to a rented property that add lasting value
The specific items that qualify depend on your capitalisation policy. Many small businesses set a minimum cost threshold, and anything below that amount is expensed immediately rather than capitalised.
Fixed assets vs current assets
Your balance sheet splits assets into two main groups: fixed (non-current) assets and current assets. Knowing the difference helps you read your financial statements and make better decisions about how your money is working.
Current assets are items your business expects to use up, sell, or convert to cash within 12 months. They include cash, inventory, receivables, and prepayments, and they keep your day-to-day operations running.
Fixed assets, by contrast, are the long-term items you rely on for more than a year. They’re held for use in your business, not for quick sale. While current assets tend to move month to month, fixed assets stay on your balance sheet and gradually lose value through depreciation.
The balance matters for financial health. Strong current assets give you good short-term liquidity, while substantial fixed assets show you’ve invested in long-term capacity. Most healthy businesses need a mix of both.
How fixed assets are recorded on the balance sheet
Recording fixed assets correctly matters for accurate reporting and tax compliance. Here’s how the process works from purchase to ongoing reporting.
Capitalising the cost
When you buy a fixed asset, you record the full purchase price as an asset rather than treating it as an expense on your profit and loss statement. The amount you capitalise includes the purchase price plus any costs needed to get the asset ready for use, such as delivery charges, installation fees, and import duties.
Where fixed assets sit on the balance sheet
Fixed assets appear in the non-current assets section of your balance sheet. They’re shown at net book value, which is the original cost minus accumulated depreciation to date. Recording property, plant and equipment at cost less accumulated depreciation follows Philippine Accounting Standard (PAS) 16, the local version of the international standard IAS 16 Property, Plant and Equipment.
Accumulated depreciation
Each year, you record a depreciation charge that reduces the carrying value of the asset. The running total of all depreciation charged since purchase is called accumulated depreciation. It sits as a contra entry against the asset’s original cost, so the balance sheet shows the net book value at any point.
How to calculate net fixed assets
Net fixed assets tell you how much value remains in your long-term assets after depreciation. The calculation is straightforward once you have two figures from your records.
- Add up the original cost of all your fixed assets to get gross fixed assets.
- Add up the accumulated depreciation recorded against those assets.
- Subtract accumulated depreciation from gross fixed assets. The result is your net fixed assets, also called net book value.
For example, if your business holds fixed assets that cost ₱2,000,000 in total and you’ve recorded ₱800,000 of accumulated depreciation, your net fixed assets are ₱1,200,000. That figure is what appears on the face of your balance sheet.
Depreciation of fixed assets
Depreciation spreads the cost of a fixed asset over its useful life. Instead of recording the whole cost when you buy the asset, you recognise a portion of it in each period the asset is in use.
Why depreciation matters
Depreciation keeps your financial statements honest about the true cost of running your business each period. Without it, your profit would look artificially low in the year of purchase and artificially high afterwards. It also helps you plan replacements by showing how much value your assets have lost.
Common depreciation methods
There are several ways to calculate depreciation. Two of the most common are straight-line and declining balance.
- Straight-line depreciation: you divide the cost of the asset, minus any estimated residual value, equally across its useful life. A delivery van costing ₱600,000 with a five-year useful life and no residual value would be depreciated at ₱120,000 per year.
- Declining-balance depreciation: you apply a fixed percentage to the asset’s remaining book value each year. This front-loads the expense, so you recognise more depreciation in the early years, which often suits vehicles and technology that lose value quickly at first.
Your choice of method should reflect how the asset actually loses value in practice.
Assets that don’t depreciate
Land is the main exception. Because it generally doesn’t wear out or become obsolete, land isn’t depreciated. If you buy a property that includes both land and a building, you split the cost and depreciate only the building portion.
Depreciation and tax in the Philippines
For tax, the BIR lets you deduct a reasonable allowance for depreciation on property used in your trade or business under Section 34(F) of the National Internal Revenue Code (NIRC). According to PwC Philippines, depreciation is generally computed on a straight-line basis, though declining-balance and other systematic methods are also acceptable, and tax depreciation should generally conform to your book depreciation. It’s worth checking with your accountant to make sure you claim the right amount.
The fixed asset lifecycle
Every fixed asset moves through a predictable journey, from the moment you buy it to the day you dispose of it. Understanding this lifecycle helps you manage costs and plan ahead.
Acquisition
The lifecycle begins when you buy or acquire the asset. You record the full cost on your balance sheet, including directly attributable expenses like delivery and installation, then assign a useful life and choose a depreciation method.
Use and maintenance
During its working life, the asset supports your operations. Regular maintenance helps extend its useful life and preserve its value. You record annual depreciation charges and account for any major repairs or improvements that extend the asset’s life or capacity.
Review and impairment
It’s good practice to review your fixed assets from time to time. If an asset’s value drops well below its book value through damage, obsolescence, or market changes, you may need to record an impairment loss so the balance sheet reflects its true recoverable value.
Disposal
When an asset reaches the end of its useful life, or you no longer need it, you dispose of it by selling, scrapping, or trading it in. At disposal, you remove the asset’s cost and accumulated depreciation from your balance sheet. If the sale price differs from the net book value, you record a gain or loss on disposal in your profit and loss statement.
Fixed asset management for small businesses
Keeping track of your fixed assets doesn’t have to be complicated, but it does take some structure. Good asset management saves you time at year end and gives you better visibility over what your business owns.
Keeping a fixed asset register
A fixed asset register is a record of every fixed asset your business owns. For each one, you note the description, purchase date, cost, depreciation method, useful life, and current net book value. It’s your go-to document when preparing accounts, filing tax returns, or answering questions from your accountant.
Tracking depreciation
Calculating and recording depreciation each period keeps your financial statements accurate. Accounting software can automate these calculations, saving you from manual spreadsheet work and reducing the risk of errors, so your balance sheet and profit and loss figures stay up to date.
Planning for replacements
By tracking how much useful life your assets have left, you can budget for replacements before they become urgent. This is especially useful for expensive items like vehicles and machinery, where an unexpected breakdown could disrupt your operations and cash flow.
Claiming depreciation for tax
Make sure you’re claiming the depreciation you’re entitled to on qualifying assets. Because the BIR allows depreciation as a deductible business expense, keeping clear records of each asset’s cost, useful life, and method helps you support the deduction. Your accountant or bookkeeper can help you apply the right rates and methods.
Manage your fixed assets with confidence using Xero
Getting a handle on your fixed assets gives you a clearer view of your financial position, so you can decide when to invest, when to replace, and how much depreciation to claim. Cloud accounting software makes it simpler to track assets, automate depreciation, and keep your books in order without the manual effort. You can spend less time on admin and more time running your business when you get one month free with Xero.
FAQs on fixed assets
Here are answers to some common questions about fixed assets and how they work in practice.
Is inventory a fixed asset?
No. Inventory is a current asset because it’s held for sale in the normal course of business. Fixed assets are items you buy to use in your operations over the long term, not to resell.
Are intangible assets the same as fixed assets?
Not exactly. Fixed assets are tangible, so they have a physical form, while intangible assets such as patents, trademarks, and software licences lack physical substance and are classified separately on the balance sheet.
What is a fixed asset register?
It’s a record of all the fixed assets your business owns, along with their cost, depreciation, and useful life. There’s no legal requirement for the smallest businesses to keep one, but most accountants recommend it to support your books and tax records.
Can fixed assets increase in value?
Some fixed assets, particularly land and buildings, can rise in market value over time. For accounting, though, most are recorded at cost minus accumulated depreciation, and small businesses usually stick with this cost model for simplicity.
What is the fixed asset turnover ratio?
It measures how efficiently you use fixed assets to generate sales, calculated as net sales divided by average net fixed assets. A higher ratio generally points to more efficient use of your assets, though it varies a lot by industry.
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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.