Fixed assets are normally refer to property, plant and equipment that have useful life more than one year. In order words, they are expected to be converted into cash in more than one year as the result of their usages.
Fixed assets costs are not directly charge into the entity’s income statement immediately at the time they are purchasing. But the costs will be charges as depreciation expenses in the systematic depreciation methods over the useful life of assets.
Useful life, depreciation rate, depreciation methods, and residual value of assets are the factors that affected the amounts of depreciation expenses during the periods.
Based on IAS 16, Useful life is:
(a) The period over which an asset is expected to be available for use by an entity; or
(b) The number of production or similar units expected to be obtained from the asset by an entity.
To ensure that the assets’ useful life are defined accurately over the life of assets, entity should at least review useful life one per year. This will help to ensure that the depreciation charges are accurately and reflected to economic value that asset contribute to entity. And assets that stated in the balance sheet are at their fair value.
When entity review its assets useful life and found that the useful life are changing, then entity should account for the change in accordance to the IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Useful life assets can be shorter or longer than the economic life assets. For example, computer can be used for five year but entity could determine the useful life of computers based on it experiences or policy for three years.
Some assets like lands have indefinite useful life not like building and others assets. Buildings have limited useful life and therefore they are depreciated. Lands are not depreciated because they have indefinite useful life.