Plant Assets Definition, Characteristics & Examples Video & Lesson Transcript

It is important to note that regardless of the reason why a company has sold some of its property, plant, or equipment, it’s likely the company didn’t realize a profit from the sale. Companies can also borrow off their PP&E, (floating lien), meaning the equipment can be used as collateral for a loan. Therefore, the first few years of the assets are charged to higher depreciation expenses. The later years are charged a lower sum of depreciation based on the assumption that lower revenue is generated. Intangible assets used in the operations of a business that have
a useful life of more than one accounting period.

• The presentation may pair the line item with accumulated depreciation, which offsets the reported amount of the asset.
• Equipment is also quite valuable and crucial to the operation of any organization.
• Plant assets (other than land) are depreciated over their useful lives and each year’s depreciation is credited to a contra asset account Accumulated Depreciation.
• Plant assets get their name from the industrial era because most fixed assets were factory plants.
• This means that the machine will depreciate by $500 in the first year.
• The physical property where a business’s operations are located is one of the most important parts of plant assets.

The rise of mass transportation has increased the focus for businesses to invest in their vehicle fleets. Transportation is one of the most valuable plant assets, but also one of the most expensive the maintain. Depreciation and amortization, or the process of expensing https://www.bookstime.com/articles/plant-assets an item over a longer period of time than when it was acquired, are calculated on a straight-line basis. It’s determined by multiplying the difference between an asset’s purchase price and its projected salvage value by the number of years it’ll be in use.

Tangible assets used in the operation of business that have

Noncurrent assets are a company’s long-term investments for which the full value will not be realized within the accounting year. They appear on a company’s balance sheet under «investment»; «property, plant, and equipment»; «intangible assets»; or «other assets». The reason fixed assets are often known as plant assets is because of the history of business accounting connected to the Industrial Revolution. The largest forms of business assets when it came to production were factory plants during this time.

The lessee gets to count the improvement value for the duration of the lease term. Each of these types is classified as a depreciable asset since its value to the company and capacity to generate income diminishes during the asset’s useful life. Below is a portion of Exxon Mobil Corporation’s (XOM) quarterly balance sheet as of September 30, 2018.

What Are Noncurrent Assets?

Machines also play a role in the production process or in providing a service. Machines are often larger and in permanent positions as compared to other equipment. Most equipment is lighter and more mobile, while machines are often more difficult to move.

Later on, the company will charge the depreciation according to the method of depreciation it usually follows. 18,000 USD must be charged to the plant asset account for every financial year as a depreciation expense. In this article, we will talk about non-current tangible assets and, specifically the plant assets. The article will be all about plant assets, their recognition, depreciation, and differentiation from other asset classes.

Nature of Business

Tangible assets that have a useful life of more than one
accounting period and are used in the operation of a business. As for buildings, per IRS rules, non-residential buildings can be depreciated over 39 years using the Modified Accelerated Cost Recovery System (MACRS) method of depreciation. Plant assets are fixed, long-term assets that are illiquid which means they are difficult to turn to cash. Most other assets are either non-tangible or assets that can be liquidated quickly.

Companies sometimes sell a portion of their assets to raise cash and boost their profit or net income. As a result, it’s important to monitor a company’s investments in PP&E and any sale of its fixed assets. However, land is not depreciated because of its potential to appreciate in value. The balance of the PP&E account is remeasured every reporting period, and, after accounting for historical cost and depreciation, is called the book value. In most cases, companies will list their net PP&E on their balance sheet when reporting financial results, so the calculation has already been done. It’s also important for companies to track their PP&E in case they need to sell assets to raise money.

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. Mary Girsch-Bock is the expert on accounting software and payroll software for The Ascent. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.