Opening Day Balance Sheet – Fixed Assets
The opening day fixed assets form part of the opening balance sheet of a business. They include such items as, land, buildings, plant & machinery, fixtures & fittings, and motor vehicles.
Fixed assets are assets with a long life that are for use within the business and not held for resale. Consequently they are not involved in the day to day working capital cycle of the business so are not readily convertible into cash.
Additionally fixed assets are sometimes referred to as long term assets or capital assets.
Most fixed assets have a limited life and therefore depreciate over time. Consequently 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 Template
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. Consequently if they are purchased after the first day, they will be included in the capital expenditure figure in the cash flow. It is important to realize that 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. Generally it is better to have it consistent with the start of a financial year.
Established Business
For an established business there will usually be a fixed assets opening balance. This assumes the business has purchased assets in the past. Consequently the value of the 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. The NBV represents the cost of the fixed assets less any accumulated depreciation.
Fixed assets NBV = Fixed assets cost - Accumulated depreciation
Startup Business
For a startup business, we recommend the use of the startup costs calculator. The calculator produces an opening balance sheet for inclusion in the financial projections template. Consequently the figure to use for the 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 opening balance.
In the projections template depreciation is automatically calculated on the net book value of the opening balance. The template uses the declining balance method at the depreciation rate previously entered.
Depreciation = Net book value of fixed assets x depreciation rate
Having entered the fixed assets opening balance, the template calculates the fixed assets at the end of each subsequent year. It does this by adding the capital expenditure from the cash flow and deducting the depreciation expense.
What’s the Next Step?
The next step in producing a five year financial projection is to enter the cash opening balance in the opening balance sheet.
This is part of the How to Create Financial Projections Guide. The guide is a series of posts on how our template is used to produce simple financial projections for a business model.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.