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The term Fixed Asset is used to represent the long-term tangible assets owned by a company, which are utilized in the production of income and are not expected to be consumed or converted into cash within a year. Fixed Asset calculation helps businesses make informed decisions about investments, resource allocation, and financial planning. Additionally, Fixed Asset calculation is centered around the value of tangible assets that contribute to the company's operations. In this article, we'll show how to calculate Fixed Assets, discuss its importance, and suggest strategies for improvement.
Here's the Fixed Asset formula:
Fixed Assets = Gross Fixed Assets - Accumulated Depreciation
Let's consider a real-world example of a manufacturing company that produces electronic devices. We'll use the following data to calculate the Fixed Assets:
Calculate the Fixed Assets using the formula:
Fixed Assets = Gross Fixed Assets - Accumulated Depreciation
Fixed Assets = $10,000,000 - $4,000,000
Fixed Assets = $6,000,000
In this example, the company's long-term tangible assets, after accounting for depreciation, are worth $6,000,000.
Understanding Fixed Assets is important for businesses for several reasons:
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