Property, plant and equipment schedules template is quite detail and includes a lot of numbers. While we are covering all of them in our future posts, let’s first clear the air around the term itself. What is meant under “property, plant and equipment” (hereinafter called as “PPE”) and what is the general accounting rules surrounding them?
As the name suggests, we are dealing with property, which may be plants and other equipment used in the production or other business related activities. The key thing is that those assets need to be related to business activities. That’s the number one condition allowing you to capitalize an asset as PPE. Now, a PPE is something that is not as liquid as inventory for an example, hence it’s used for a longer period, usually over 12 months. So in a nutshell a PPE is an asset, which the company uses in its operations for a longer period than 12 months. The functions of such an asset may include gaining revenue by producing goods or rendering services, reducing costs or waiting to be revalued and hence make profits. A luxury yacht for management is rarely a PPE simply for the same reason. It’s not actually business related, when you think about it. However, you can always come up with something related and then enjoy the merits.
Capitalizing assets as PPE includes as a first step recognizing them on the balance sheet at cost. The cost may include various things. Amongst others are within this cost sums paid to suppliers for the asset itself, expenses incurred as part of transporting the asset into its location, where it is supposed to be and function, non-refundable taxes paid, all expenses incurred while implementing and setting the machinery up into its intended state and location etc. All currency exchange differences are also capitalized and are hence shown on our Property, plant and equipment schedules template.
In future periods the PPE is depreciated over the estimated life of the assets, because nothing actually (except for land only) stays operational and usable forever. The useful life is something that is determined right from the recognition and is revisited annually. If for an example the management sees that the asset can be used for a longer period, the useful life needs to be revalued and hence the depreciation charge reduced in future periods. If the useful life is shorter than initially planned, the period is shortened and hence the charge increases. Those changes are not retrospective however, they only affect future periods.
The Property, plant and equipment schedule template includes various changes that can happen to an asset so we’ll cover them in more detail in our future posts.
GOOD WORK,KEEP IT UP.