Definition:

Net of fixed assets are the net of gross value of fixed assets in balance sheet after the elimination of accumulated depreciation expenses, accumulated impairment expenses, and the debt or liabilities that entity used to acquire fixed assets.

The main idea behind the calculation of net fixed assets is that we want to know what is the net value of net fixed assets after deducting the liabilities that associating with fixed assets from net books value or carrying value of assets at the reporting date. And we also want to know how serious the entity invested in the assets to improve their operation and performance is. Investors and potential acquirers alway want to know this before they decide to invest or acquire.

This calculation is not for financial reporting purpose, but it is mainly for assessing the value of assets during merger and acquisition by analyst.

After eliminating the associated liabilities, we clearly could see how much the entity actually invested in their fixed assets by using their own capital or money.

Let see the explanation in the formula below, it might help you to get better understanding about this.

Formula:

+ Gross amount of fixed assets at the reporting date
+ Fixed assets addition during the period
– Accumulated depreciation expenses at the reporting date
– Accumulated impairment expenses at the reporting date
– Debt or liabilities associated with the fixed assets
= Net fixed assets

Explanation to the formula above,

Now if you want to calculate the net fixed asset of an entity at the specific reporting, you need to have financial information such as

  • Total (gross before depreciation or impairment) value of fixed assets. You might need to head to the balance sheet of the entity that you to calculate for and find what is the gross amount of fixed assets at the reporting date. Sometime you can find here, and sometime you can find it in the noted to fixed assets. Remember this is the gross amount.
  • Accumulated depreciation expenses at the reporting date. Same as total fixed assets, the accumulation expenses could also find in the balance sheet or noted to fixed assets.
  • Total amount of fixed assets addition during the period. This is depending is on what date of gross fixed asset you are taken for this calculation. For example, the date you want to calculate is 31 December 2018, and the gross fixed assets is taken at this date. Then you don’t need to add fixed assets addition. But of the gross value is taken at 31 December 2017, then you need to add the addition amount during 2018.
  • The liabilities that entity incurred as the result of purchase fixed assets. These liabilities could be bank loan that entity borrow to purchased fixed assets or the payables that entity own to suppliers as the result of purchasing fixed assets on credit. All the liabilities that occurred as the result of purchase fixed assets need to eliminate from the gross fixed assets in the calculation. We eliminate this value because we want to know how much entity invested in purchasing fixed assets by using their own money.
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List of Fixed Assets:

Entity reports fixed assets in balance sheet and normally assets are categories into different categories based on types of assets and their usages.

The following are the list general categories of fixed assets:

  1. Buildings: These include office building, warehouse and others similar kind of. Their useful life normally longer compared to others fixed assets.
  2. Computer equipment: These include laptop, desktop, servers, printers and others similar kind of equipment. Useful life is around three to five years depending on type of equipment.
  3. Computer software: These are the software that entity purchases or business processing or it could be the software that entity build by their own team.
  4. Furniture and fixtures: These are tables, chairs, closets, cabinets and others similar.
  5. Intangible assets: These are franchise, copyright, trademark and sometime software also including here.
  6. Land: Land is classed separately from building and land improvement. Land could not be depreciated.
  7. Leasehold improvements: They are mainly related to the decoration or interior expenses incur by entity on the leased office or building.
  8. Machinery: These are the list of machines example cutting machines
  9. Vehicles: These are the cars, trucks, and others related vehicles.

Example:

ABC is the mobile operator company and based the financial statements as at 31 December 2018 its gross fixed assets amount USD 350,000K.

The accumulated depreciation up to the reporting date is $50,000K while the impairment that entity just assessed in 2018 is 1,000K. ABC borrowed local bank to purchase fixed assets amount 100,000K.

Now let calculate the net fixed assets of ABC as at 31 December 2018.

Based on example above, we have:

  • Total gross amount of fixed assets at 31 December 2018 amount 350,000K
  • Accumulated depreciation as at 31 December 2018 amount $50,000K
  • Impairment lost 1,000K in 2018
  • Banks loan for purchased fixed assets 100,000K.
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Formula to calculate net fixed assets is,

+ Gross amount of fixed assets at the reporting date
+ Fixed assets addition during the period
– Accumulated depreciation expenses at the reporting date
– Accumulated impairment expenses at the reporting date
– Debt or liabilities associated with the fixed assets
= Net fixed assets

Now we get,

+ 350,000K
+ 0
– 50,000K
– 1,000
– 100,000K

= 199,000K

Based on calculation, we get net fixed assets of ABC at 31 December 2018 is $199,000K. This is the net fixed assets after deducting bank loan from net book value of assets. If we don’t eliminate bank loan from book value, then we will get $299,000K.

These two figure might provide the insight information about entity on investing in new assets and it may change the potential investors’ perspective on the entity.

It is the good idea to calculate net asset of previous period with current period. This way will help analyst to have better information for their analysis. For example, if previous period net assets is USD 100,000, that mean entity inject their own money USD 99,000K. We can say that

For example, if previous period net assets is USD 100,000, that mean entity inject their own money USD 99,000K. We can say that entity pay more attention in improving their operation as well as improve their performance.

In this case, the potential investors could believe that entity’s business will grow substantially or potential acquire believe that they may not need to invest more on the fixed assets in term of replacement or improvement if they acquire the company.

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This article is written by Sinra