Loading the player...

What is 'Property, Plant And Equipment - PP&E'

Property, plant and equipment (PP&E) is a company asset that is vital to business operations but cannot be easily liquidated, and depending on the nature of a company's business, the total value of PP&E can range from very low to extremely high compared to total assets. International accounting standard 16 deals with the accounting treatment of PP&E. It is listed separately in most financial statements because it is treated differently in accounting statements, and improvements, replacements and betterments can pose accounting issues depending on how the costs are recorded.

BREAKING DOWN 'Property, Plant And Equipment - PP&E'

PP&E is also called tangible fixed assets. These assets are physical, tangible assets and they are expected to generate economic benefits for a company for a period of longer than one year. Examples of PP&E include land, buildings and vehicles. Industries or businesses that require a large amount of fixed assets are described as capital intensive.

Financial Statement Record

PP&E is recorded in a company's financial statements in the balance sheet. The cost of PP&E considers the actual cost of purchasing and bringing the asset to its intended use. This cost is called the historical cost. For example, when purchasing a building for a company to run its retail operations, the historical cost could include the purchase price, transaction fees and any improvements made to the building to bring it to its destined use. The value of PP&E is adjusted routinely as fixed assets generally see a decline in value due to use and depreciation. Amortization is used to devalue these assets as they are used, but land is not amortized because it can increase in value. Instead, it is represented at current market value. The balance of the PP&E account is remeasured every reporting period, and, after accounting for historical cost and amortization, is called the book value. This figure is reported on the balance sheet.

Significance

While PP&E is generally meant to be held and used by the company in the course of its business, it is considered an asset because a company could sell its property, plant or equipment, either because it is no longer of use or if the company runs into financial difficulties. Of course, selling property, plant and equipment that is necessary to a company's course of business could be drastic and could signal that a company is in financial trouble. It is important to note, that whatever the reason a company has in selling some of its property, plant or equipment, it is unlikely that a company will make a profit on the sale of the asset.

RELATED TERMS
  1. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses ...
  2. Long-Term Assets

    1. The value of a company's property, equipment and other capital ...
  3. Business Asset

    A piece of property or equipment purchased exclusively or primarily ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Replacement Cost

    The cost to replace the assets of a company or a property of ...
  6. Cash Flow From Investing Activities

    An item on the cash flow statement that reports the aggregate ...
Related Articles
  1. Investing

    Explaining Property, Plant and Equipment

    Property, plant and equipment are company assets that are vital to business operations, but not easily liquidated.
  2. Investing

    How to Evaluate a Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  3. Investing

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  4. Managing Wealth

    What's an Asset?

    An asset is a resource with economic value.
  5. Investing

    Understanding Capital Assets

    A capital asset is one that a company plans on owning for more than one year, and uses in the production of revenue.
  6. Managing Wealth

    What's a Tangible Asset?

    Tangible assets are property owned by a business that can be touched -- they physically exist. Examples include furniture and fixtures, computer hardware, delivery equipment, leasehold improvements ...
  7. Investing

    Company Clone Cost Reveals True Value

    Find out how calculating a reproduction cost for a company can beat out the dividend discount model.
  8. Investing

    What's a Fixed Asset?

    Fixed assets are tangible property that a business uses in the process of producing income. To qualify as a fixed asset, the item cannot be consumed or sold in less than a year. Fixed assets ...
  9. Investing

    Understanding Historical Cost

    Historical cost equals the original purchase price of an asset recorded on a company’s balance sheet.
  10. Investing

    Distressed Debt An Avenue To Profit In Corporate Bankruptcy

    Use debt securities to attack bankrupt companies and scavenge them for profits.
RELATED FAQS
  1. Should computer software be classified as an intangible asset or part of property, ...

    In accounting terms, an intangible asset is something of value that is not of physical nature. On the other hand, property, ... Read Answer >>
  2. What is property, plant and equipment, and what does it mean?

    Property, plant and equipment (PP&E) is a term that describes an account on the balance sheet. The PP&E account is a summation ... Read Answer >>
  3. What is the fixed asset turnover ratio and why is it important?

    Learn about the fixed asset turnover ratio and how this calculation is used to analyze how efficiently a company uses its ... Read Answer >>
  4. What is the difference between fixed assets and current assets?

    Learn the differences between fixed assets such as land and current assets such as cash, as well as how these types of assets ... Read Answer >>
  5. What are the different types of tangible assets?

    Learn what tangible assets are, what other names they are called, what specific items are included and how they are handled ... Read Answer >>
  6. When is it useful to look at a company's fixed asset turnover ratio?

    Understand when it is useful to look at a company's fixed asset turnover ratio, and learn which industries are best suited ... Read Answer >>
Hot Definitions
  1. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  2. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  3. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  4. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  5. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  6. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
Trading Center