Property, plant and equipment (PPE) are tangible, long-lived assets used by a firm. Tangible assets derive value from their physical substance. These assets include land, land improvements (such as parking lots and roads), office buildings, office equipment, manufacturing facilities (factories), and factory equipment. These assets are sometimes referred to as fixed assets.
Property, plant, and equipment have several important characteristics:
- A relatively long life
- The production of income or services over its life
- Tangibility—having physical substance
Generally accepted accounting principles (GAAP) for property, plant, and equipment have evolved without the promulgation of any Level A or B GAAP rule making on a comprehensive basis. Because of this lack of authoritative literature, many believe that diversity in practice has developed with respect to both the type of costs capitalized and the amounts. In June 2001, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued an exposure draft of a Statement of Position (SOP) titled “Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment.” Although a final statement has not yet been adopted, many of the concepts and practices discussed in the following pages may be significantly affected when the SOP is finalized.
Property, plant, and equipment usually are recorded at cost, defined as the amount of consideration paid or incurred to acquire or construct an asset. Cost consists of several elements. The capitalizable costs include the invoice price (less discounts), plus other costs such as sales tax, insurance during transit, freight, duties, ownership searching, ownership registration, installation, and break-in costs.
Property, Plant, and Equipment (PPE) Topics
- Property, Plant and Equipment (PPE)
- Initial Valuation of Property, plant, and equipment (PPE)
- Depreciation of Property, plant, and equipment (PPE)
- Expenditures After Acquisition – Property, plant, and equipment (PPE)
- Disposals of Property, plant, and equipment (PPE)
- Write-Downs – Property, plant, and equipment (PPE)
- Financial Statement Presentation of Property, plant, and equipment (PPE)
- Utilization of Property, plant, and equipment (PPE)
- Percentage of PPE Depreciated (Age)
- Evaluation of the Accounting for Property, Plant, and Equipment (PPE)