Fixed assets and depreciation

Measuring the cost of tangible fixed assets is often fairly easy. Where a company makes tangible fixed assets for its own use, the amount capitalized may simply be the direct outlay for labour and materials. Accounts normally show intangible fixed assets at cost less aggregate depreciation to date. The Companies Act 1985 requires companies to disclose three different kinds of fixed assets: Intangible assets, Investments, and Tangible assets. The accounts must disclose the aggregate market value of listed investments; and must provide for and disclose any permanent diminution in an investment’s value. Depreciation recognizes that most tangible fixed assets are gradually used up in providing goods or services over time. The depreciation charges still equal the asset’s total net cost over its useful life; but there is a lower charge in the early years. At the beginning of the life of a fixed asset both its economic life and its ultimate residual value can only be estimated.