Definition
Plant assets, often synonymous with fixed assets, are long-term tangible assets used in the operations of a business. These include land, buildings, machinery, furniture, fixtures, and other equipment that are permanently employed in business activities. In some contexts, ‘plant’ refers specifically to the combination of land and buildings or simply buildings alone.
Examples
- Land and Buildings: A company may own a factory (building) situated on land, both of which are categorized as plant assets.
- Machinery: Equipment used for production in manufacturing.
- Furniture and Fixtures: Office furniture and fixtures that are used over several accounting periods.
- Vehicles: Delivery trucks and company cars.
Frequently Asked Questions (FAQs)
Q1: What distinguishes plant assets from other types of assets?
A1: Plant assets are long-term tangible assets used in the production or operations of a business, typically lasting more than one year. They are not intended for sale to customers (unlike inventory).
Q2: How are plant assets depreciated?
A2: Plant assets are subject to depreciation, which involves allocating the cost of the asset over its useful life, except for land, which is not subjected to depreciation due to its indefinite life.
Q3: Can plant assets be revalued?
A3: Yes, plant assets can be revalued; some accounting standards (such as IFRS) allow for assets to be revalued to fair value under certain conditions.
Q4: How is the cost of plant assets determined?
A4: The cost of plant assets includes the purchase price, delivery costs, installation costs, and any other expenses necessary to get the asset ready for use.
Q5: What is the difference between plant and equipment?
A5: “Plant” often refers to the physical location and structures (e.g., factories and buildings), while “equipment” pertains to the tools and machinery used within those structures.
- Fixed Assets: Another term for long-term tangible assets, used in business operations.
- Depreciation: The process of allocating the cost of a tangible asset over its useful life.
- Property, Plant, and Equipment (PPE): An accounting term encompassing all long-term assets used in business operations.
Online Resources
Suggested Books for Further Studies
- “Financial Accounting” by Weygandt, Kimmel, and Kieso: This comprehensive textbook covers the fundamental principles of financial accounting, including the treatment of plant assets.
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield: A detailed guide on intermediate accounting topics with extensive coverage of property, plant, and equipment.
- “Managerial Accounting” by Ray H. Garrison, Eric W. Noreen, and Peter C. Brewer: A textbook focusing on the internal use of accounting information, including asset management and depreciation.
Fundamentals of Plant Assets: Accounting Basics Quiz
### Is depreciation applicable to all plant assets?
- [ ] Yes, all plant assets are depreciated.
- [x] No, land is not depreciated.
- [ ] Only machinery is depreciated.
- [ ] Depreciation does not apply to plant assets at all.
> **Explanation:** Land is not subject to depreciation because it has an indefinite useful life. Other plant assets such as buildings and machinery are depreciated.
### Which of the following is categorized under plant assets?
- [ ] Inventory held for sale
- [x] Office building
- [ ] Accounts receivable
- [ ] Patents
> **Explanation:** An office building is a plant asset, a long-term tangible asset used in business operations. Other choices do not qualify as plant assets.
### What expenses are included in the cost of a plant asset?
- [ ] Only the purchase price
- [x] Purchase price, delivery costs, and installation costs
- [ ] Only installation costs
- [ ] Only delivery costs
> **Explanation:** The cost of a plant asset includes the purchase price, delivery costs, installation costs, and any other expenses necessary to make the asset ready for use.
### Over what duration are plant assets typically depreciated?
- [ ] One year
- [ ] Indefinitely
- [x] The useful life of the asset
- [ ] Over a period decided by the owner
> **Explanation:** Plant assets are depreciated over their useful life, which is determined based on expected usage and business practices.
### What distinguishes plant assets from liquid assets?
- [ ] Plant assets can be easily converted to cash
- [ ] Plant assets are intangible
- [x] Plant assets are long-term and used in operations
- [ ] Liquid assets are used in operations for more than one year
> **Explanation:** Plant assets are long-term tangible assets used in operations, whereas liquid assets are short-term and easily converted to cash.
### What financial statement primarily reports plant assets?
- [x] Balance sheet
- [ ] Income statement
- [ ] Statement of cash flows
- [ ] Statement of retained earnings
> **Explanation:** Plant assets are reported on the balance sheet under the section for property, plant, and equipment.
### How does plant asset impairment affect financial statements?
- [x] It reduces the carrying amount of the asset and affects net income
- [ ] It increases the carrying amount of the asset
- [ ] It does not affect financial statements
- [ ] It is recorded on the statement of cash flows only
> **Explanation:** Impairment reduces the carrying amount of the asset and is recognized as a loss on the income statement, thereby affecting net income.
### Can intangible assets be considered plant assets?
- [ ] Yes, all intangible assets are plant assets
- [ ] Yes, if they are used in operations
- [x] No, plant assets are tangible
- [ ] No, intangible assets are non-depreciable
> **Explanation:** Plant assets are tangible long-term assets, whereas intangible assets like patents or trademarks are not classified as plant assets.
### What is the main purpose of plant assets in a business?
- [ ] To be sold quickly for cash
- [ ] To be kept as emergency funds
- [ ] To be used for personal purposes of owners
- [x] To facilitate business operations and production
> **Explanation:** Plant assets are used in the production of goods and services, facilitating ongoing business operations.
### How often should plant assets be revalued according to standard accounting principles?
- [ ] Every month
- [ ] Bi-annually
- [x] Annually, or when there is an indication of significant change
- [ ] Every five years
> **Explanation:** Revaluation of plant assets should be performed annually or when there is a significant change in value as per accounting standards.
Thank you for learning about plant assets and participating in our specialized quiz to enhance your accounting knowledge!
