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Valuing correctly: How companies can present fixed assets transparently

posted 15.03.2023

The valuation of fixed assets is crucial for understanding the financial situation of a company. In this article we take a look at the different aspects of valuation and show how companies can make investment decisions and present their balance sheets in a transparent way.

Valuation of fixed assets: These criteria are taken into account

If you are the owner of a company, you need to think about your fixed assets. Fixed assets are the inalienable part of the assets of a company. But every year, at the end of the year, the fixed assets have to be valued. To do this, however, you first need to know which company assets belong to fixed assets. InventoryNord then shows you how the company assets are valued and to what extent the assets must be capitalised.

What exactly are fixed assets?

Which assets belong to fixed assets? You must be able to answer this question if you want to carry out a valuation of fixed assets. Assets contribute to the functioning of the enterprise. But they are also used to build up a company. In contrast to current assets, fixed assets are long-term assets of the enterprise. These long-term assets can be, for example, plant or machinery.

Valuation of fixed assets: difference between fixed and current assets

As with fixed assets, current assets are also a type of asset. Total assets are made up of fixed and current assets. However, if you want to carry out the valuation of fixed assets, you only have to take into account the assets that will remain in the business for a longer period of time.

When valuing fixed assets, you do not have to take into account the items that are in current assets. These assets include, for example, raw materials or receivables. To calculate the asset intensity of an enterprise, both types of assets are taken into account.

You can calculate the liquidity of a company by dividing it. To do this, you simply have to divide the fixed assets by the current assets. If the asset intensity turns out to be very high, the company's liquidity is low.

Valuation of fixed assets: Presentation of fixed assets in the balance sheet

If you want to carry out a valuation of fixed assets, you have to classify the assets correctly. This classification was regulated in the Commercial Code. Accordingly, intangible assets are listed first.

This is followed by tangible assets with land, plant and machinery. After that, you must list the financial assets if you want to make the valuation of the fixed assets. Financial assets include shares in affiliated companies, loans from affiliated companies, participations and other loans.

You must take these assets into account if you want to make a valuation of fixed assets. Current assets follow directly after fixed assets. Finally, there are the prepaid expenses and deferred tax assets.

This is how the valuation of fixed assets works

The valuation of fixed assets is somewhat more complicated than the valuation of current assets. Accordingly, you must capitalise tangible and intangible fixed assets. However, capitalisation of assets can only take place if you have fulfilled some prerequisites.

If an asset has been capitalised, it appears on the asset side of the balance sheet. A prohibition on capitalisation applies, for example, to intangible assets, expenses for setting up a company and expenses for research and distribution. On the other hand, there is an option to capitalise internally generated intangible assets and low-value assets.

The obligation to capitalise exists for all assets that have a limited useful life and if it has not been regulated otherwise.

Valuation of fixed assets: timing and calculation

For the annual financial statement, you need to know the current values of the assets. You can easily find these out by carrying out a fixed asset valuation. All you need is the current value of the assets you own.

The perfect time to carry out a fixed asset valuation is just before the preparation of the annual accounts. However, due to a possible decrease in value, the values must be determined anew every year. Whether company cars or machinery: The value of these assets is continuously reduced.

Accordingly, the value for the valuation of fixed assets must be determined anew each year. You need the acquisition value of an asset to value it. In the balance sheet, however, the book value is decisive. If you take the production and acquisition costs minus depreciation, you have quite simply determined the book value.

As a rule, depreciation is scheduled. Once an asset has been acquired, depreciation begins. The date on which the asset is sold again is the end date of depreciation.

If the assets remain in the company after the end of their useful life, they are posted with a memo value of one euro. The useful life can be looked up in the official depreciation table for generally usable fixed assets. An unscheduled depreciation is made if there is an unforeseen reduction in value. For the valuation of fixed assets, the development of the value of an asset must be shown exactly.

Foto by Charlirmpoj Pimpisar