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 fixed asset is a long-term tangible piece of property that ...
  2. Long-Term Assets

    1. The value of a company's property, equipment and other capital ...
  3. Cash Flow From Investing Activities

    An item on the cash flow statement that reports the aggregate ...
  4. Non-Cash Charge

    A charge made by a company against earnings, which does not require ...
  5. Net Tangible Assets

    Calculated as the total assets of a company, minus any intangible ...
  6. Straight Line Basis

    A method of computing amortization (depreciation) by dividing ...
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

    Comparing Tangible and Intangible Assets

    Tangible assets are physical assets such as land, vehicles or equipment.
  7. Investing

    Distressed Debt An Avenue To Profit In Corporate Bankruptcy

    Use debt securities to attack bankrupt companies and scavenge them for profits.
  8. Investing

    Calculating Return on Net Assets

    Return on net assets measures a company’s financial performance.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. What are some examples of fixed assets?

    Learn the difference between fixed tangible assets and fixed intangible assets, and review examples of these two types of ... Read Answer >>
  5. 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 >>
  6. What is the difference between tangible and intangible assets?

    Tangible assets are physical assets such as land, vehicles, equipment, machinery, furniture, inventory, stock, bonds and ... Read Answer >>
Hot Definitions
  1. IRR Rule

    A measure for evaluating whether to proceed with a project or investment. The IRR rule states that if the internal rate of ...
  2. Short Covering

    Short covering is buying back borrowed securities in order to close an open short position.
  3. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  4. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  5. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  6. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
Trading Center