Property, Plant and Equipment
Definition of Property, Plant and Equipment
Non–current productive fixed assets with a useful life of more than one year. They are shown at their book value (BV) which is computed as purchase price (historical cost) less depreciation.
Most of the value of these fixed–term assets depreciates (except land, which has an infinite life span). This depreciation is spread over the useful life
of the fixed asset.
Typical items under Property, Plant and Equipment:
- land
- buildings
- capital leases
- computers
- fixtures
- furniture
- leasehold improvements
- machinery
- vehicles
Characteristics of Property, Plant and Equipment
Here are the three major characteristics of Property, Plant and Equipment:
- These assets are purchased for use in business operations and not for resale or investment.
- They are expected to last for many years are are depreciated, with the exception of land.
- They have physical substance, as opposed to intangile assets such as goodwill.
Valuation of Property, Plant and Equipment
Property, Plant and Equipment is valued at historical cost for accounting purposes. That means the amount of cash or cash equivalents used to obtain the assets and bringing them to the desired location. It also includes any costs involved in putting them in a condition necessary for their intended use.
Typically in the cost of any assets falling under the Property, Plant and Equipment category are included such items as:
- freight costs
- sales taxes
- installation costs of a productive asset
Costs incurred after the asset has been acquired are added to the asset's costs, if they provide future service potential. Examples of such costs are:
- additions
- improvements
- replacements
If they do not provide future service potential, they are expensed in the period in which they were incurred.
Please click on the links below to read about the individual components of Property, Plant and Equipment:
LandLand Improvements
Buildings
Equipment
Accumulated Depreciation
12 Month Cash Flow Template
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Balance Sheet Templates
1, 3 and 5 year balance sheet templates for three different legal entities: LLC, corporation and a sole proprietor.
Balance Sheet Analysis
Learn how to analyze a balance sheet in terms of company's liquidity and solvency using financial ratios such as the current ratio, quick (or acid) ratio, debt to asset ratio and debt to equity ratio.
Return from Property, Plant and Equipment to Sample Balance Sheet
Return from Property, Plant and Equipment to Small Business Accounting
