Property, Plant, and Equipment
Property, Plant and Equipment
Property, Plant and Equipment I- Nature of Accounting Issues
Businesses purchase and use a variety of fixed assets, such as equipment, furniture, tools, machinery, buildings, and land. These fixed assets are long-term or relatively permanent assets. Also, they are tangible assets because they exist physically. They are owned and used by the business and are not offered for sale as part of normal operations. Perhaps the most descriptive titles these assets are known under are plant assets or property, plant and equipment. Depending on the industry, the plant assets of a business can be a significant part of its total assets. That is why the accounting for these long-term assets has important implications for a company’s reported results. In this paper, we discuss the proper accounting for the acquisition, use, and disposition of property, plant, and equipment.
Before going over a brief overview of the nature of accounting issues, we ought to take a deeper look at what plant assets really are. The major characteristics of property, plant, and equipment are as follows: * They are acquired for use in operations and not for resale. Only assets used in normal business operations are classified as property, plant, and equipment. For example, an idle building is more appropriately classified separately as an investment. Also, land developers or sub dividers classify land as inventory.
* They are long-term in nature and usually depreciated. Property, plant, and equipment yield services over a number of years. Companies allocate the cost of the investment in these assets to future periods through periodic depreciation charges. The exception is land, which is depreciated only if a material decrease in value occurs, such as a loss in fertility of agricultural land because of poor crop rotation, drought, or soil erosion.
* They possess physical substance. Property, plant, and equipment are tangible assets characterized by
Property, Plant and Equipment I- Nature of Accounting Issues
Businesses purchase and use a variety of fixed assets, such as equipment, furniture, tools, machinery, buildings, and land. These fixed assets are long-term or relatively permanent assets. Also, they are tangible assets because they exist physically. They are owned and used by the business and are not offered for sale as part of normal operations. Perhaps the most descriptive titles these assets are known under are plant assets or property, plant and equipment. Depending on the industry, the plant assets of a business can be a significant part of its total assets. That is why the accounting for these long-term assets has important implications for a company’s reported results. In this paper, we discuss the proper accounting for the acquisition, use, and disposition of property, plant, and equipment.
Before going over a brief overview of the nature of accounting issues, we ought to take a deeper look at what plant assets really are. The major characteristics of property, plant, and equipment are as follows: * They are acquired for use in operations and not for resale. Only assets used in normal business operations are classified as property, plant, and equipment. For example, an idle building is more appropriately classified separately as an investment. Also, land developers or sub dividers classify land as inventory.
* They are long-term in nature and usually depreciated. Property, plant, and equipment yield services over a number of years. Companies allocate the cost of the investment in these assets to future periods through periodic depreciation charges. The exception is land, which is depreciated only if a material decrease in value occurs, such as a loss in fertility of agricultural land because of poor crop rotation, drought, or soil erosion.
* They possess physical substance. Property, plant, and equipment are tangible assets characterized by
Cited: Ankarath, Nandakumar, et al. Understanding IFRS Fundamentals: International Financial Reporting Standards. Hoboken, New Jersey. John Wiley & Sons Inc., 2010. Print. Bragg, Steven M. Wiley GAAP 2011: Interpretation and Application of Generally Accepted Accounting Principles. Hoboken, New Jersey. John Wiley & Sons Inc., 2010. Print. "FASB: Property, Plant and Equipment." FASB: Financial Accounting Standards Board. N.p., n.d. Web. 26 Nov. 2012. <http://www.fasb.org/jsp/FASB/Page/SectionPage>. Kieso, Daniel E., Jerry J. Weygandt, and Terry D. Warfield. "Wiley: Intermediate Accounting, 14th Edition." Wiley: Intermediate Accounting, 14th Edition. N.p., n.d. Web. 26 Nov. 2012. <http://www.wiley.com/WileyCDA/WileyTitle/productCd-EHEP001739.html>. "Summary of IAS 16 Property, Plant and Equipment." IFRS. N.p., n.d. Web. 26 Nov. 2012. <http://www.ifrs.com/blog/post/summary-of-ias-16-property-plant-and-equipment>. "Http://mcgladrey.com/pdf/us-gaap-vs-ifrs-property-plant-equiment.pdf." U.S GAAP vs IFRS: Property, Plant and Equipment. McGladrey, n.d. Web. 26 Nov. 2012.