Below is a portion of Exxon Mobil Corporation’s (XOM) quarterly balance sheet as of September 30, 2018. Equipment is an unusual case as it can be considered both an asset (in that it helps your company grow and will incur greater sales) and a liability (as you may still be in the process of paying it off). Bearing that in mind, it is important to understand that it isn’t quite either. Perform impairment tests whenever there are indicators of impairment, such as significant declines in is net plant and equipment a current asset market value, changes in the asset’s use, or adverse economic conditions.

My expertise extends to financial statement analysis, capital expenditure planning, and the critical differentiation between current and non-current assets. PP&E are long-term, tangible assets that the corporation owns, and they are typically fixed assets. PP&E contains assets like equipment, land, and real estate that enable the corporation to increase its enterprise value over time. It is vital that a company accurately records its PP&E on its balance sheet. Analysts or potential investors will often look at a business’s PP&E to see how and where the company is spending its money in relation to its fixed assets.

What is PP&E (Property, Plant, and Equipment)?

PP&E assets are fixed, tangible business assets that likely can’t be converted to cash within a year. PP&E are physical items that a company may find hard to liquidate for a cash price equivalent. The depreciation expense gets used to lower the value of the net balance. That should include any import levies, non-refundable taxes, and discounts or rebates. If a business buys equipment with a view to selling it (and not for use in production), then it would be considered inventory, which is a current asset.

Definition and Purpose of Accumulated Depreciation

• The declining balance method applies a constant depreciation rate to the book value of the asset each year.
• This is useful because it allows them to have an up-to-date view of the value of their business, but it also allows them to properly calculate the tax liability for their business assets.
• Her areas of expertise include accounting system and enterprise resource planning implementations, as well as accounting business process improvement and workflow design.
• The carrying amount of PP&E shall be derecognized on disposal; or when no future economic benefits are expected from its use or disposal.

Let’s examine how a real company, ABC Corp., calculates and reports its PP&E in its financial statements. Revaluation can be particularly important in industries where asset values fluctuate significantly due to market conditions, technological advancements, or changes in economic factors. By revaluing PP&E, companies can ensure their financial statements are more relevant and reliable for decision-making by stakeholders. Accurately estimating the useful life is crucial as it directly affects the annual depreciation expense. For instance, a machine expected to last for 10 years will have a different depreciation schedule compared to one expected to last for only 5 years. The purchase price is the initial amount paid to acquire the asset.

True Tamplin, BSc, CEPF®

Now that we understand the basics, formula, and the calculation aspect of the concept, let us apply our theoretical knowledge to practical application through the examples below.

Investing in PP&E

You can find a company’s PP&E listed in the assets section of its balance sheet. It’s typically included in the current assets section of their total assets. Many companies list their PP&E as property and equipment, PP&E or as property, plant and equipment. It’s also useful for the business itself to keep track of its PP&E. This is if there comes a time when they need to liquidate their assets in order to raise capital.

The formula to calculate the ending PP&E balance consists of adding Capex to the beginning PP&E balance and then subtracting the depreciation expense. To solve this problem, a portion of the expense is spread out over a number of years instead. Expenses accounted for in this way are known as “capital expenditures”. PP&E offers real-time benefits, including insights into a company’s financial health, strategic planning, and collateral for financing. Property, Plant, and Equipment (PP&E) are essential long-term assets crucial for a company’s operations. Current assets include cash, cash equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and other liquid assets.

Amortization is used to devalue these assets as they are used, but land is not amortized 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 amortization, is called the book value. Property, plant, and equipment are also called fixed assets, meaning they are physical assets that a company cannot easily liquidate.

📆 Date: Aug 2-3, 2025🕛 Time: 8:30-11:30 AM EST📍 Venue: OnlineInstructor: Dheeraj Vaidya, CFA, FRM

CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.

• This detailed approach ensures transparency and accuracy in financial reporting.
• The equipment are also referred to as any other assets that are used in the daily operation but do not fall under the category of building or property or machinery used in the production process.
• Calculating Net PP&E involves adding gross value and capital expenditures and subtracting accumulated depreciation.
• These physical and tangible assets have a useful life of more than a single year.
• This understanding aligns with established accounting principles that classify PP&E as fixed assets.
• This case study demonstrates how a company calculates and reports its PP&E, providing a comprehensive view of the assets’ acquisition, depreciation, revaluation, and impairment.

Since PP&E is a long-term asset, the purchase of these fixed assets – i.e. capital expenditures (Capex) – is not expensed immediately during the period incurred. The reason for this depreciation in accounting is that larger expenses are considered “capital” costs. To calculate Net PP&E, we first need to understand the gross PP&E and accumulated depreciation. Gross PP&E represents the original purchase cost of all physical assets held by a company. On the other hand, accumulated depreciation reflects the wear and tear of these assets over time. Also known as fixed assets, PP&E are essentially long-term physical assets.

Each subsequent period’s opening balance is equal to the prior period’s closing balance, which is how the schedule rolls forward. An exercise such as this is very common in financial modeling and valuation analysis. In May 2017, Factory Corp. owned PP&E machinery with a gross value of $5,000,000.

How to Calculate Accumulated Depreciation

PP&E is therefore not always a useful metric of a company’s value. The carrying amount of PP&E gets derecognised under certain circumstances. These sources offer a wealth of information on PP&E accounting, providing both foundational knowledge and advanced insights for further exploration.

Tangible assets have physical characteristics we can see and touch. In addition to plant assets such as buildings and furniture, they include natural resources such as gas, oil, and investments. Examples of PP&E include buildings, machinery, land, office equipment, furniture, and vehicles. Noncurrent assets are a company’s long-term investments for which the full value will not be realized within a year and are typically highly illiquid. Depreciation on your assets is based on standard accounting methods. You can use an accelerated method that takes most of the depreciation up front, or you can subtract it evenly, over time.