Furniture, fixtures, and equipment (abbreviated as FF&E) refer to movable furniture, fixtures, or other equipment that are not permanently affixed to the structure of a building. These items typically include desks, chairs, computers, electronic equipment, tables, bookcases, and partitions. They depreciate significantly over their long-term use but are crucial costs to consider when valuing a company, especially during liquidation events.
These items are sometimes referred to as furniture, fixtures, and accessories (FF&A).
Key Takeaways
- Furniture, fixtures, and equipment (FF&E) are movable items that are not permanently attached to a building and can be easily relocated.
- For accounting purposes, each FF&E item has a different useful life based on IRS guidelines.
- Companies track wear and tear of FF&E items by depreciating their values over their useful lives.
The Essential Role of FF&E in Business Operations
An asset is categorized as FF&E if it’s used by a business for routine daily operations. For instance, an office receptionist uses their desk, chair, telephone, computer, desk organizer, and pen holder to accomplish daily business activities.
Accountants classify FF&E as tangible assets and list them under separate line items on financial statements and other budgeting documents. The FF&E balance is then incorporated into a project’s total costs to ascertain whether an initiative remains within budget.
Real-World Example of FF&E Accounting Treatment
Accountants distribute the acquisition costs of FF&E items over time by steadily depreciating their values throughout their useful lives. To achieve this, they must first accurately determine the useful life of each item based on IRS guidelines.
Although FF&E items often have useful lives of one year or more, they can vary significantly from item to item. For example, while a desktop computer may be considered technologically outdated after three years, the IRS designates it with a useful life of five years. Conversely, the IRS assigns office furniture a useful life of seven years. Security equipment, like X-ray scanners, may also fall under FF&E as these items can be relocated from a building’s premises.
Real-World Example of FF&E Depreciation
Assume a new car is worth $10,000 with a useful life of five years, according to the IRS. Suppose the vehicle’s maximum salvage value is 20%. When a company initially purchases the car, it records the monthly depreciation charge. The depreciation charge would be $133.33 at the end of the first month. The net book value of the car is determined by subtracting the accumulated depreciation from the original book value over its useful life.
Related Terms: Asset, Tangible Assets, Depreciation, Useful Life, Liquidation.
References
- Board of Governors of the Federal Reserve System. “Financial Accounting Manual for Federal Reserve Banks, January 2022: Chapter 3. Property and Equipment”.
- Internal Revenue Service. “Publication 946, How to Depreciate Property”, Page 28.
