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  • Writer's pictureErinn Fraser

Fixed Asset Valuation and Why It Matters

Fixed assets refer to assets your business intends to keep for over a year, such as buildings, vehicles or machinery, playing a vital role in daily operations and long-term success. At Fraser Financials, we help our clients maintain complete, accurate Fixed Asset records and values. Knowing their value is crucial for the following reasons:

  1. Financial Reporting: Fixed assets are a significant part of a company's balance sheet. The accurate valuation of fixed assets is crucial for preparing financial statements, including the balance sheet, which provides stakeholders with a snapshot of the company's financial position.

  2. Investor and Stakeholder Confidence: Investors, lenders, and other stakeholders often rely on financial statements to make decisions about investing, lending, or partnering with a company. Accurate information about fixed assets contributes to transparency and builds confidence in the organization's financial health.

  3. Depreciation: Fixed assets, such as buildings and machinery, depreciate over time. We can create custom depreciation schedules or use ones you provide. We use these to give you accurate depreciation monthly, instead of only at year-end for tax purposes. The value of your assets is their initial cost minus this depreciation. Knowing the value of fixed assets is essential for financial planning.

  4. Insurance Coverage: Companies need to insure their fixed assets to protect against potential losses due to events like fire, theft, or natural disasters. The insurance coverage is usually based on the replacement value or fair market value of the assets. We can help you know those numbers.

  5. Strategic Decision-Making: Understanding the value of fixed assets aids in strategic decision-making. For instance, when considering expansion, selling your business or mergers, knowing the value of existing assets can influence choices and negotiations.

  6. Asset Management: Knowing the value of fixed assets is crucial for effective asset management. This includes monitoring the condition of assets, assessing their performance, and making informed decisions about repairs, upgrades, or replacements.

  7. Compliance and Regulations: Compliance with accounting standards (GAAP) and regulatory requirements often involves proper valuation and reporting of fixed assets. Adhering to these standards ensures legal and regulatory compliance.

  8. Loan Collateral: If a company needs to secure a loan, fixed assets can be used as collateral. In such cases, accurate valuation of these assets is essential for determining the loan amount and mitigating the lender's risk.

  9. Budgeting and Planning: Understanding the value of fixed assets helps in budgeting and long-term financial planning. It allows businesses to allocate resources efficiently and make informed decisions about capital expenditures.

In summary, knowing the value of fixed assets is vital for financial management, decision- making, and compliance. It provides a clear picture of a company's financial health and assists in planning for both the short and long term success of the business.

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