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Also referred to as PPE (property, plant, and equipment), these are purchased for continued and long-term use in earning profit in a business. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land assets). These assets are significant for any business entity because they’re necessary for running operations. Besides, there is a heavy investment involved to acquire the plant assets for any business entity. The company’s top management regularly monitors the plant assets to assess any deviations, discrepancies, or control requirements to avoid misuse of the plant assets and increase the utility. Plant assets are different from other non-current assets due to tangibility and prolonged economic benefits.

A roll of fabric is transformed into a dress, so it is not a fixed asset either. In this article, we’ve explained the concept of plant assets in very detail. We hope you’ll know the difference between plant assets and other non-current assets and the accounting treatment. 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. 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.

Depreciation helps to accurately show the asset’s reduced value and plan for its replacement when the value becomes zero. In accounting of https://business-accounting.net/, we will see where a company records the purchase of an asset, depreciation as well as disposal. 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.

  1. The company also has a printing press for printing customized merchandise with brand designs.
  2. These assets are expected to provide economic benefits to the company beyond the current accounting period.
  3. There is a further classification of tangible and intangible non-current assets.
  4. Any miscellaneous amounts earned from the building during construction reduce the cost of the building.

You can find the best equipment suited according to your budget online, for example, you can get easily affordable sheet metal shear and much other equipment at just one click. The expected useful life of the machine is 7 years, and the salvage (scrap) value after 7 years will be $50,000. An organization’s asset is something that the management plans to use for the financial benefit of the company. From the accounting and economic point of view, any asset has value in the market, must belong to someone, and, again, provide a profit. Whether a portion of available cash is used, or the asset is financed by debt or equity, how the asset is financed has an impact on the financial viability of the company. This can be misleading when an outsider is trying to gain an understanding of the value of a business by perusing its financial statements.

Even if the market value of the asset changes over time, accountants continue to report the acquisition cost in the asset account in subsequent periods. The name plant assets comes from the industrial revolution era where factories and plants were one of the most common businesses. This category of assets is not limited to factory equipment, machinery, and buildings though. Anything that can be used productively to general sales for the company can fall into this category.

What Is the Difference Between Assets and Plant Assets?

Broadly speaking, an asset is anything that has value and can be owned or used to produce value, and can theoretically be converted to cash. In business, assets can take several forms — equipment, patents, investments, and even cash itself. Here’s a rundown of the different types of assets a business can possess, and the type of assets that are considered to be plant assets. Over time, plant assets lose value, and this decline refers to depreciation. Companies depreciate an asset by dividing its purchase cost throughout its useful life, i.e., until the asset benefits the company.


When a plant asset is acquired by a company that is expected to last longer than one year, it is recorded in the balance sheet at the end of the financial year. Besides, a part of the asset’s cost is charged to expenses account as a non-cash expense, depreciation. 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. Property, plant, and equipment (PP&E) are long-term assets vital to business operations.

plant assets are usually expensive, long-term investments made to underpin a company’s production process. Needless to say, they’re an enormously important part of producing goods and/or services in an economically efficient manner. Businesses must be especially careful in making these investments since buildings and land are immovable and can’t be easily substituted. Generally, plant assets are among the most valuable company assets and tend to be relied on greatly over the long term.

Sum of Years Digit Method

This article is not intended to provide tax, legal, or investment advice, and BooksTime does not provide any services in these areas. This material has been prepared for informational purposes only, and should not be relied upon for tax, legal, or investment purposes. BooksTime is not responsible for your compliance or noncompliance with any laws or regulations. Some accountants have maintained that the equipment account should be charged only with the additional overhead caused by such construction.

The best way to manage your assets is to use an accounting software application that simplifies the entire asset management process from the initial acquisition to asset disposal. It’s actually about time that you educate yourself about these plant assets to make your business flourish. Land improvements consist of building up things like street lights, parking lots, fences, lakes, landscaping, etc.

Current assets are short-term, meaning they are items that are likely to be converted into cash within one year, such as inventory. Even the smallest business has assets, which can include everything from cash in the bank, to the computer you’re working on, to the building where you manufacture piggy banks. Plant assets are deprecated over their useful lives using the straight line or double declining depreciation methods. The Sum of Years’ Digits depreciation method divided the depreciation expenses every year by a fraction based on the number of remaining years. The straight-line method is the most commonly used method in most business entities.

In the balance sheet of the business entity, these assets are recorded under the head of non-current assets as Plant, property, and equipment. Any land maintenance, improvement, renovations, or construction to increase building operations or revenue generation capacity are also recorded as part of the plant assets. The assets can be further categorized as tangible, intangible, current, and non-current assets. It includes cash/bank, short-term securities, inventories, account receivables, etc. PP&E are vital to the long-term success of many companies, but they are capital intensive. Companies sometimes sell a portion of their assets to raise cash and boost their profit or net income.

To calculate PP&E, add the amount of gross property, plant, and equipment, listed on the balance sheet, to capital expenditures. Overall, plant assets are vital resources for a company’s long-term operations. They enable businesses to carry out their core activities efficiently and effectively, contributing to their growth and success in the marketplace.