Furniture, Fixtures, and Equipment (FFE)

In the field of construction and equipment, which don’t have any permanent relation to be construction, are known as the FF&E or Furniture, Fixtures and Equipment. Books, computers, chairs, desks etc are objects that even though will have a major role in determining the value after depreciation through long term use, to essential costs incurred when the Company is put to analysis. These products are better known as FFE or Furniture Fixture and Accessories or equipment.

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How often do businesses require these assets?

It is to be noted that an object can be called an FFE, if it is being used in a business setting each day. In a normal working day, a receptionist would use their computer, telephone, pen holder and organizer. This is why the products so used by him or her can be placed in the section of FF&E.

For the purpose of budgeting and other financial actions, accountants usually list FF&E in tangible assets, under the category of special line items. The cost of the FFE items is then added to the total cost of the project to see if it has taken the total cost for the same under the budget or crossed it. So, to say these are those assets of the Company which are essential to its daily functioning.

Where on the balance sheet are these placed?

It has been seen that in most cases FF&E doesn’t need to be mentioned as part of the contract for the Company This is because things might change and there might be additions or removal from the same. In most business settings the owner of the building or the interior designer shall be responsible for the FF&E package, especially designed to meet the needs of that particular business. While the FF&E are not usually included in the blueprints or drawing for the business the objects are later placed as required.

Even if there are drawings of the objects seen on the blueprint of a property to be constructed, it is only to envision how the furniture would look in that place to determine the size and scale of the same. These items typically have no permanent connection to the building’s structure. These could include shelves, desks, chairs, bookcases, office partitions, telephones, printers, and everything in between. So much so that from the point of view of accounting, these objects would be considered as personal assets instead of company assets.

 Are these unavoidable assets for the business?

These assets are unavoidable in the sense that business activities cannot be complete till the time a business doesn’t possess these basic et of assets. Imagine walking into a consultancy and having to stand through the entire discussion because the business didn’t own table and chairs for client meetings. This is why there is need for judicious planning while thinking of purchasing a property and keeping in mind the costs of the relatable FF&E so that the actual cost of setting up the business is kept in mind rather than just the  cost of the building. Since all these  costs need to be figured out by the business owner, there is need for accurately planning the aggregate costs of the business set up in order to ensure not having to face any unnecessary business costs later.

The analogy

The best analogy to understand what FF&E are, imagine a miniature model of a business that has all its functions set properly, showing what goes where and who does what. Now if you were to pick up this miniature model and turn it upside down, whatever things would come falling down and displaced from their designated spots in the construction are FF&Es. Whether it’s the fixtures in the bathroom or the shelf that had flowers and books over it, the tables, chairs, computers etc, every business needs these furniture, fixtures, and equipment in order to actually make any work happen.

How would you explain this using an example?

While the cost of acquisition for the FF&E objects go through steady depreciation through use there is need for determining the appropriate “useful life” of the object in question, based upon the guidelines laid out by the IRS.

Even though in a typical setting FF&E objects have a year or more in terms of useful life, the figures may ted to vary from one object to another substantially. In such an example you will see that while technologically, a computer desktop might be rendered useless in a matter of 3 years while the useful life on the same could be 5 years. Office furniture on the other hand is deemed useful by the IRS for a span of 7 years, while this may be subjective to the objects being in best shape.(If a chair happens to break, it is no longer useful).

The depreciation as we know is the reduction in the cost of any object over the years due to use. Done for the purpose of accounting and tax or something even both, the formula to determine the same is “cost of asset over life expectancy “or useful life of the same.