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. Asset management benefits from accurate depreciation tracking, as it affects financial statements and tax filings. Different industries may choose different depreciation methods to match their usage patterns better.

What characteristics do plant assets have in common?

Assets like computers and factory machines need regular upkeep to keep them running smoothly. Without good asset management, businesses could face downtime and high maintenance costs. In actual practice, it is not only difficult but impractical to identify how much of plant assets are defined as the plant assets have actually been used to produce business revenue. Hence, we will calculate depreciation proportionately based on the useful lives of the plant assets. Do take note that freehold land should not be depreciated since they have indefinite useful lives.

• Companies must consider factors such as the quality, cost, and reliability of the assets, as well as their compatibility with existing systems or infrastructure.
• It also allows businesses to optimize their asset utilization, free up resources, and make informed decisions regarding replacement or upgrade of assets.
• This includes purchase price, shipping costs, installation charges and any other costs directly attributable to bringing the asset to its working condition.
• Industries like heavy shipping or oil extraction stand to employ a greater percentage of plant assets than industries like software, in which teams may be remote and sometimes globally distributed.
• 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.

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Depreciation of Plant Assets

Because of the term’s roots during the Industrial Revolution when plants and factories were the most frequent mode of production for major companies at the time, plant assets are referred to as such. Despite the fact that plant assets are still referred to as such, the assets in this category are no longer confined to factory or plant-related resources. Tom’s Machine Shop is a factory that machines fine art printing presses. One of the CNC machines broke down and Tom purchases a new machine for $100,000. The bookkeeper would record the transaction by debiting the plant assets account for $100,000 and crediting the cash account for the same. While they’re most definitely both considered part of the asset category, current assets and plant assets don’t share all that much in common.

• This means that we don’t reduce its value over time through depreciation.
• This would include long term assets such as buildings and equipment used by a company.
• One distinguishing feature of plant assets is that they are not meant for resale.
• Different industries may choose different depreciation methods to match their usage patterns better.
• Despite the fact that plant assets are still referred to as such, the assets in this category are no longer confined to factory or plant-related resources.
• In the balance sheet of the business entity, these assets are recorded under the head of non-current assets as Plant, property, and equipment.
• It’s crucial to recognize which of your assets are plant assets, regardless of their worth.

The PP&E account is remeasured every reporting period, and, after accounting for historical cost and depreciation, is defined as book value. To calculate PP&E, add the gross property, plant, and equipment, listed on the balance sheet, to capital expenditures. Companies commonly list their net PP&E on their balance sheet when reporting financial results. It is important for businesses to properly identify and classify their plant assets to ensure accurate financial reporting and effective management of these assets. By categorizing and tracking these assets, companies can evaluate their investment decisions, assess their maintenance needs, and plan for future upgrades or replacements.

Plant Assets in Financial Statements

Depreciation helps to reflect the gradual loss of value and obsolescence of these assets as they are used in the production process or over time. The second method of deprecation is the declining balance method or written down value method. Every year, the percentage is applied to the remaining value of the asset to find depreciation expense. In the initial years of the asset, the amount of depreciation expense is higher and decreases as time passes. Every business concern or organization needs resources to operate the business functions. The resources are sometimes owned by the company and sometimes borrowed by external parties.

• Plant assets are key to a company’s production process and are often considered among the most valuable items on the balance sheet.
• Knowing when and how much to invest in improvements helps manage capital expenditures wisely.
• Plant assets are subject to depreciation, which is the process of allocating the cost of an asset over its useful life.
• Overall, plant assets are vital resources for a company’s long-term operations.
• Long-term investments, such as bonds and notes, are also considered noncurrent assets because a company usually holds these on its balance sheet for more than one fiscal year.
• Besides, a part of the asset’s cost is charged to expenses account as a non-cash expense, depreciation.