What is property, plant, and equipment at cost?
What is Property, Plant, and Equipment?Property, plant, and equipment (PP&E) includes tangible items that are expected to be used in more than one reporting period and that are used in production, for rental, or for administration. This can include items acquired for safety or environmental reasons. In certain asset-intensive industries, PP&E is the largest class of assets. Show
Classifications of Property, Plant, and EquipmentPP&E items are commonly grouped into classes, which are groups of assets having a similar nature and use. Examples of PP&E classes are buildings, furniture and fixtures, land, machinery, and motor vehicles. Items grouped within a class are typically depreciated using a common depreciation calculation. Many items grouped into a PP&E class are assigned the same useful life for depreciation purposes. Accounting for Property, Plant, and EquipmentWhen recording an item within PP&E, include in its cost the purchase price of the asset and related taxes, as well as any related construction costs, import duties, freight and handling, site preparation, and installation. When an item has a relatively low cost, it is typically charged to expense rather than being recorded in PP&E, in order to reduce the asset tracking work of the accounting department; the threshold below which items are charged to expense is called the capitalization limit. Once an asset has been recorded, it is depreciated over its useful life. Depreciation is a consistently-applied charge that is intended to reflect the use of an asset over time. By the end of an asset’s useful life, its remaining book value should be zero. When an asset is eventually retired, its asset value and the accumulated amount of depreciation expense associated with it are eliminated from the accounting records. Definition of Property, Plant and EquipmentProperty, plant and equipment is the long-term asset or noncurrent asset section of the balance sheet that reports the tangible, long-lived assets that are used in the company's operations. These assets are commonly referred to as the company's fixed assets or plant assets. Generally, the property, plant and equipment assets are reported at their cost followed by a deduction for the accumulated depreciation that applies to all of these assets except land (which is not depreciated). Examples of Property, Plant and EquipmentTypical assets that are included in property, plant and equipment are land, buildings, machinery, equipment, vehicles, furniture, fixtures, office equipment, etc. which are used in the business. Also included in this balance sheet classification is a subtraction of the accumulated depreciation that pertains to these assets. IAS 16 establishes principles for recognising property, plant and equipment as assets, measuring their carrying amounts, and measuring the depreciation charges and impairment losses to be recognised in relation to them. Property, plant and equipment are tangible items that:
Property, plant and equipment includes bearer plants related to agricultural activity. The cost of an item of property, plant and equipment is recognised as an asset if, and only if:
An item of property, plant and equipment is initially measured at its cost. Cost includes:
In April 2001 the International Accounting Standards Board (Board) adopted IAS 16 Property, Plant and Equipment, which had originally been issued by the International Accounting Standards Committee in December 1993. IAS 16 Property, Plant and Equipment replaced IAS 16 Accounting for Property, Plant and Equipment (issued in March 1982). IAS 16 that was issued in March 1982 also replaced some parts in IAS 4 Depreciation Accounting that was approved in November 1975. In December 2003 the Board issued a revised IAS 16 as part of its initial agenda of technical projects. The revised Standard also replaced the guidance in three Interpretations (SIC‑6 Costs of Modifying Existing Software, SIC‑14 Property, Plant and Equipment—Compensation for the Impairment or Loss of Items and SIC‑23 Property, Plant and Equipment—Major Inspection or Overhaul Costs). In May 2014 the Board amended IAS 16 to prohibit the use of a revenue‑based depreciation method. In June 2014 the Board amended the scope of IAS 16 to include bearer plants related to agricultural activity. In May 2017, when IFRS 17 Insurance Contracts was issued, it amended the subsequent measurement requirements in IAS 16 by permitting entities to elect to measure owner-occupied properties in specific circumstances as if they were investment properties measured at fair value through profit or loss applying IAS 40 Investment Property. In May 2020, the Board issued Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) which prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss. Other Standards have made minor consequential amendments to IAS 16. They include IFRS 13 Fair Value Measurement (issued May 2011), Annual Improvements to IFRSs 2009–2011 Cycle (issued May 2012), Annual Improvements to IFRSs 2010–2012 Cycle (issued December 2013), IFRS 15 Revenue from Contracts with Customers (issued May 2014), IFRS 16 Leases (issued January 2016) and Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018). What is considered property, plant, and equipment?Property, plant and equipment are tangible items that: are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and. are expected to be used during more than one period.
What is included in the cost of equipment?Equipment Cost
Fixed costs include the purchase cost of the equipment and the annual depreciation. These are important figures to understand for more than just the bidding process, as the balance sheet of any construction company should include a detailed breakdown of equipment depreciation.
What are the three components of the cost of property, plant, and equipment?Directly attributable costs include: costs of employee benefits arising directly from the construction or acquisition of the item of PPE. costs of site preparation. initial delivery and handling costs.
How can determine the cost of property, plant, and equipment?To calculate PP&E, add the amount of gross property, plant, and equipment, listed on the balance sheet, to capital expenditures. Next, subtract accumulated depreciation. The result is the overall value of the PP&E. It's often referred to as the company's book value.
|
