Opening Day Balance Sheet – Fixed Assets
The opening day fixed assets form part of the opening balance sheet of the business, and include such items as, land, buildings, plant & machinery, fixtures & fittings, and motor vehicles.
Fixed assets are assets which have a long life and are for use within the business and not held for resale. They are not part of the trading stock, and are not involved in the day to day working capital cycle of the business so are not readily convertible into cash.
Fixed assets are sometimes referred to as long term assets or capital assets.
Most fixed assets have a limited life, the exception being land, and therefore depreciate over time. An estimate of this depreciation is charged to the income statement each accounting period and represents an operating expense of the business.
Fixed Assets Opening Balance in the Financial Projection
Fixed assets included in the opening balance sheet are no different than any other fixed assets, only the timing differs.
Opening fixed assets included in the opening balance sheet, are simply fixed assets that are acquired before the first day of the financial projection. If they are purchased after the first day, they will be included in the capital expenditure figure in the cash flow. The opening fixed assets should not be included in both places as this will result in double counting.
The date on which the financial projection starts is entirely a matter of personal choice, usually it is better to have it consistent with the start of a financial year.
For an established business, there will always be a fixed assets opening balance (assuming the business has purchased some in the past). The value of the fixed assets opening balance can be found on the latest available balance sheet. The figure to use is the net book value (NBV) of the fixed assets which represents the cost of the fixed assets less any accumulated depreciation.
For a startup business, we recommend the use of the startup costs calculator which produces an opening balance sheet for inclusion in the financial projections template. The figure to use for the fixed assets opening balance is the fixed asset value shown under the heading opening balance sheet in the calculator. For a start up business, the accumulated depreciation will be zero.
Our tutorial on how to estimate start up assets explains in more detail how to decide what should be included the fixed assets opening balance.
Depreciation is automatically calculated on the net book value of the fixed assets opening balance using the declining balance method at the depreciation rate previously entered into the financial projections template.
Having entered the fixed assets opening balance, the template calculates the fixed assets at the end of each subsequent year by adding the capital expenditure from the cash flow and deducting the depreciation charge included in the income statement.
What’s the Next Step?
The next step in producing a five year financial projection for your business plan using our financial projections template is to enter the cash opening balance in the opening balance sheet of the financial projection.
This is part of the How to Create Financial Projections Guide a series of posts on how our template is used to produce simple financial projections for a business model.