What are fixed assets?
Published
Fixed assets are property the business acquires for use in its activity beyond a year - equipment, furniture, vehicles, premises - not for resale. They are capitalised at cost, then convert to expense gradually through depreciation.
``
Net book value = Cost − Accumulated depreciation
At Al-Waha: 92,000 − 17,400 = SAR 74,600
``
What enters capitalised cost
Everything required to make the asset ready for use in its place:
Purchase price (net of deductible VAT)+ Freight and insurance to site+ Customs+ Installation, setup, testing= Capitalised cost
A machine priced 5,000 with 300 freight and 450 installation capitalises at 5,750 - not 5,000 plus two expenses. After readiness, it's expense: routine maintenance, fuel, running costs - maintenance keeps the asset working (expense); a substantial improvement extends its capacity or life (capitalise).
The asset register
Each asset gets a card: description, ready-for-use date, cost, useful life, depreciation method, accumulated depreciation, net value, location. The register is what makes the balance sheet's "74,600" expandable asset by asset - without it, the assets line becomes a growing black box.
Disposal: selling an asset, worked
Al-Waha sells an old machine: cost 12,000, accumulated depreciation 9,500, sold for 3,400 (net of VAT):
Net book value = 12,000 − 9,500 = 2,500Gain on disposal = 3,400 − 2,500 = SAR 900
| Account | Debit | Credit |
|---|---|---|
| Bank / receivable (gross incl. VAT) | 3,910 | |
| Accumulated depreciation | 9,500 | |
| Fixed assets (cost) | 12,000 | |
| Output VAT | 510 | |
| Gain on asset disposal | 900 |
The asset exits at cost with its accumulated depreciation together - removing only the net leaves the register distorted. And selling a used business asset is a taxable supply by default - settle the cases with your accountant.
Frequently asked questions
What capitalisation threshold fits?
A written policy (SAR 500-1,000 is common for small businesses) - see the expense page.
A fully depreciated asset still in use?
It stays on the register at cost and accumulated depreciation (net zero or salvage) until actually disposed - deleting it merely because depreciation finished erases its trail.