Fixed assets
Learn what fixed assets are, how they're recorded and depreciated, and how SARS wear-and-tear allowances work.
Published Wednesday 12 August 2026
Table of contents
Key takeaways
- Fixed assets are long-term physical resources your business owns and uses to generate income, such as equipment, vehicles and property. They're also known as property, plant and equipment (PP&E) on the balance sheet.
- Unlike current assets, fixed assets aren't intended for sale within the normal course of business. They stay on your balance sheet for more than one financial year and lose value over time through depreciation.
- Recording fixed assets accurately matters for tax purposes, financial reporting and understanding the true value of your business. In South Africa, you can claim wear-and-tear allowances under section 11(e) of the Income Tax Act on qualifying assets.
- Keeping a fixed asset register and tracking depreciation helps you plan replacements, manage cash flow and stay compliant with SARS requirements.
What are fixed assets?
Fixed assets are long-term tangible items your business owns and uses to operate and earn revenue. They're not bought with the intention of selling them quickly; instead, they provide value over multiple years.
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, and they're accounted for under IAS 16 (or Section 17 of IFRS for SMEs). They represent a significant investment in your business and form the backbone of day-to-day operations.
Common examples include office buildings, delivery vehicles, 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 one year, it's typically 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. The value of your fixed assets directly affects your balance sheet, your borrowing capacity and the financial decisions you make.
For South African small businesses, fixed assets also have important tax implications. When you buy qualifying assets, you can claim wear-and-tear allowances under section 11(e) of the Income Tax Act to reduce your taxable income. Getting the accounting right from the start saves time and avoids problems when you file your tax return with SARS.
Key characteristics of fixed assets
Not every purchase counts as a fixed asset. There are specific characteristics that set fixed assets apart from day-to-day expenses and other types of assets on your balance sheet.
Tangibility
Fixed assets are physical items you can see and touch. This distinguishes them from intangible assets like 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 last and provide economic benefit for more than one accounting period, which typically means more 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 vehicle used to transport goods is a fixed asset. But if you're a car dealership, the vehicles on your forecourt 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 immediately. This means the purchase price goes onto your balance sheet as an asset, and you gradually write off the cost over the asset's useful life through depreciation. This approach matches the expense to the periods in which the asset generates revenue.
Illiquidity
Fixed assets aren't easy to convert to cash quickly. Unlike money in the bank or outstanding invoices, selling a piece of machinery or a building takes time and effort. That's why they sit in the non-current section of your balance sheet.
Types and examples of fixed assets
Fixed assets fall into three main categories, collectively known as property, plant and equipment (PP&E). Here are the most common types you'll encounter as a small business owner.
Property
This category includes land and buildings your business owns, such as offices, warehouses, workshops and retail premises. Land is unique because it doesn't depreciate.
Plant
Plant refers to the larger equipment and machinery used in your operations. This includes manufacturing machines, construction equipment, production tools and specialised installations.
Equipment
Equipment covers the smaller assets that support daily operations. Common examples include:
- vehicles: delivery vans, company cars, bakkies and other transport used in operations
- IT and computer equipment: laptops, desktops, servers, printers and networking hardware
- office furniture and fittings: desks, chairs, shelving, lighting and fitted kitchens
- tools and instruments: specialised hand tools, measuring devices and diagnostic equipment
- leasehold improvements: renovations and alterations made to a rented property that add lasting value
The specific items that qualify as fixed assets depend on your business's 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 categories: fixed (non-current) assets and current assets. Understanding 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. These include cash, inventory, trade debtors and prepayments. They're the short-term resources that keep your day-to-day operations running.
Fixed assets, by contrast, are the long-term items you rely on for more than one year. They're held for use in your business, not for quick sale. While current assets tend to fluctuate month to month, fixed assets stay on your balance sheet and gradually lose value through depreciation.
The key distinction matters for financial health. A business with strong current assets has good short-term liquidity, while a business with substantial fixed assets has invested in its long-term capacity. Most healthy businesses need a balance of both.
How fixed assets are recorded on the balance sheet
Recording fixed assets correctly on your balance sheet is essential for accurate financial 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 on your balance sheet rather than treating it as an expense on your profit and loss statement. The amount you capitalise includes the purchase price plus any costs directly 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 typically listed at their net book value, which is the original cost minus the accumulated depreciation to date. This gives anyone reading your accounts a realistic view of what those assets are currently worth to the business.
Accumulated depreciation
Each year, you record a depreciation charge that reduces the carrying value of the asset on your balance sheet. The 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 given point.
How to calculate the value of fixed assets
Calculating the value of your fixed assets tells you how much of your original investment remains. The key figure is net book value.
Net book value formula
Net fixed assets equal the total original cost of all your fixed assets minus the total accumulated depreciation. In other words, net book value is the original cost minus accumulated depreciation.
For example, if you bought machinery for R100,000 and have recorded R40,000 of accumulated depreciation, the net book value is R60,000. This figure appears on your balance sheet and shows the remaining value of that asset to your business.
When to use this calculation
Knowing your net book value helps you understand the true worth of your long-term investments. It's useful when preparing financial statements, applying for finance, planning asset replacements or assessing your business's overall value.
Depreciation of fixed assets
Depreciation is the process of spreading the cost of a fixed asset over its useful life. Instead of recording the entire cost as an expense when you buy the asset, you recognise a portion of that cost in each accounting period the asset is in use.
Why depreciation matters
Depreciation ensures your financial statements reflect the true cost of running your business in any given period. Without it, your profits would look artificially low in the year of purchase and artificially high in the years that follow. It also helps you plan for replacements by showing how much value your assets have lost over time.
Common depreciation methods
There are several ways to calculate depreciation. The most common methods used by South African small businesses are:
- straight-line depreciation: you divide the cost of the asset (minus any estimated residual value) equally across its useful life. For example, machinery costing R100,000 with a five-year useful life and no residual value would be depreciated at R20,000 per year
- diminishing-value (reducing balance) depreciation: you apply a fixed percentage to the asset's remaining book value each year, which front-loads the expense so you recognise more depreciation in the earlier years. It's often a better match for assets like vehicles and technology that lose value quickly at first
- units of production: you base depreciation on actual usage or output, which works well for machinery where wear relates to how much the asset is used rather than time alone
Your choice of method should reflect how the asset actually loses value in practice. Under IAS 16 (or Section 17 of IFRS for SMEs), you also review the useful lives of your assets regularly.
Assets that don't depreciate
Land is the main exception. Because land generally doesn't wear out or become obsolete, it isn't depreciated and doesn't qualify for wear-and-tear allowances. If you buy a property that includes both land and a building, you'll need to split the cost and only depreciate the building portion.
Depreciation and South African tax: wear-and-tear allowances
For tax purposes, SARS doesn't use your accounting depreciation. Instead, South African businesses claim a wear-and-tear allowance under section 11(e) of the Income Tax Act on qualifying moveable business assets, using write-off periods that SARS sets out in SARS Binding General Ruling 7. For this allowance you may elect the straight-line or the diminishing-value method.
New and unused manufacturing plant and machinery can qualify for the accelerated section 12C allowance of 40% in the first year and 20% a year for the next three years, as summarised in the SARS Tax Guide for Small Businesses. It's worth speaking to your accountant or tax practitioner to make sure you're claiming the right allowance.
The fixed asset lifecycle
Every fixed asset goes through a predictable journey from the moment you buy it to when you eventually dispose of it. Understanding this lifecycle helps you manage costs and plan ahead.
Acquisition
The lifecycle begins when you purchase or acquire the asset. At this stage, you record the full cost on your balance sheet, including any directly attributable expenses like delivery and installation. You'll also assign a useful life and choose a depreciation method.
Use and maintenance
During its working life, the asset contributes to your business operations. Regular maintenance helps extend its useful life and preserve its value. You'll record annual depreciation charges and may also need to account for any significant repairs or improvements that extend the asset's life or capacity.
Review and impairment
It's good practice to review your fixed assets periodically. If an asset's value drops significantly below its book value due to damage, obsolescence or market changes, you may need to record an impairment loss. This adjusts the balance sheet to reflect the asset's 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 require 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 all the fixed assets your business owns. For each asset, you'll typically note the description, date of purchase, cost, depreciation method, useful life and current net book value. This register is 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. Automated depreciation tracking also means your balance sheet and profit and loss figures stay up to date in real time.
Planning for replacements
By monitoring how much useful life your assets have left, you can plan and 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 wear-and-tear allowances
Make sure you're taking advantage of the tax relief available on qualifying fixed assets. Small items that work on their own and cost less than R7,000 each can be written off in full in the year you buy them, while larger assets are written off over the periods SARS sets out in Binding General Ruling 7. Your accountant or bookkeeper can help you identify which assets qualify and claim the right amount.
Manage your fixed assets with confidence with Xero
Getting a handle on your fixed assets gives you a clearer view of your business's financial position. With accurate records, you can make informed decisions about when to invest, when to replace and how much tax relief to claim.
Xero makes it simpler to track your assets, automate depreciation and keep your books in order without the manual effort, so you spend less time on admin and more time running your business. You can get one month free to see how it brings your fixed assets into one place.
FAQs on fixed assets
Here are some frequently asked questions about fixed assets and how they work in practice.
What are the three types of fixed assets?
The three types are property, plant and equipment (PP&E). Property includes land and buildings, plant covers larger machinery and installations, and equipment includes vehicles, computers, furniture and tools.
Is inventory a fixed asset?
No. Inventory (or stock) 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, meaning they have a physical form, while intangible assets such as patents, trademarks and software licences lack physical substance. Both are long-term, but they're classified separately on the balance sheet.
What is a fixed asset register?
A fixed asset register is a formal record of the assets your business owns, and it's the document you'll turn to during a SARS verification or audit. Most accountants recommend keeping one as part of year-end bookkeeping.
How are fixed assets taxed in South Africa?
You claim a wear-and-tear allowance under section 11(e) of the Income Tax Act on qualifying moveable assets, using the write-off periods SARS sets out in Binding General Ruling 7. Accounting depreciation itself is not deductible; the section 11(e) allowance is claimed instead.
Can fixed assets increase in value?
Some fixed assets, particularly land and buildings, can increase in market value over time. For accounting purposes, though, most fixed assets are recorded at cost minus accumulated depreciation, and most small businesses stick with the cost model for simplicity.
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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.