Definition
Property, Plant, and Equipment (PP&E) refers to a category of tangible fixed assets used in the operation of a business. These assets typically include land, buildings, plant and machinery, fixtures, and other types of equipment. According to the Financial Reporting Standard applicable in the UK and Republic of Ireland (Section 17), PP&E assets are different from current assets in that they are used or expected to be used over more than one accounting period. Notably, certain types of spare parts or maintenance materials may also qualify as PP&E, provided they meet the criteria for long-term use.
Key Points
- Tangible Fixed Assets: These are physical, touchable assets.
- Long-Term Use: PP&E assets are expected to be used for more than one accounting period.
- Depreciation and Revaluation: Once recognized at their initial cost, PP&E assets are either depreciated based on the historical cost convention or subjected to regular revaluation.
Exclusions
- Biological Assets: These do not qualify as PP&E.
- Heritage Assets: These are explicitly excluded.
- Investment Properties: These are only included if their fair value cannot be reliably measured without undue cost and effort.
Examples
- Land: Typically used for factory sites or office locations and is generally not depreciated.
- Buildings: Warehouses, office buildings, and other structures used for business operations.
- Machinery: Industrial and manufacturing machines used for production.
- Fixtures and Fittings: Office furniture, light fixtures, and other equipment.
- Vehicles: Company cars, delivery trucks, and other transport used in business.
Frequently Asked Questions (FAQs)
Q: What qualifies an asset to be categorized under PP&E?
A: An asset qualifies for PP&E if it is a tangible fixed asset used in the operations of a business and is expected to be used for more than one accounting period.
Q: Are there any assets specifically excluded from PP&E?
A: Yes, biological assets and heritage assets are explicitly excluded, while investment properties are only included under certain conditions.
Q: How are PP&E assets initially recognized?
A: PP&E assets are initially recognized at their initial cost.
Q: What methods are used for the subsequent measurement of PP&E?
A: Subsequent measurement could involve depreciation according to the historical cost convention or regular revaluation.
Q: Can spare parts and maintenance materials be included in PP&E?
A: Yes, provided they are expected to be used over more than one accounting period.
Related Terms
- Fixed Assets: Long-term tangible assets used in operating a business.
- Current Assets: Assets expected to be converted to cash or used up within one accounting period.
- Historical Cost Convention: An accounting method where assets are recorded based on their original purchase cost.
- Revaluation of Fixed Assets: The process of updating the book value of an asset to reflect its current market value.
- Depreciation: The systematic allocation of the cost of a tangible asset over its useful life.
- Fair Value: An estimate of the market value of an asset.
Online Resources
Suggested Books for Further Studies
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
- “Financial Accounting and Reporting” by Barry Elliott and Jamie Elliott
- “Accounting for Fixed Assets” by Raymond H. Peterson
- “Principles of Accounting” by Belverd E. Needles, Marian Powers
Accounting Basics: “PP&E Fundamentals Quiz”
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