| LO1 - Describe how the cost of property, plant, and equipment (PPE) is determined, and calculate PPE. |
Property, plant, and equipment (PPE) are long-lived assets that are acquired for the purpose of generating revenue either directly or indirectly. They are held for use in the production or supply of goods and services, have been acquired for use on a continuing basis, and are not intended for sale in the ordinary course of business. Examples of PPE assets include land, office and manufacturing buildings, production machinery, trucks, ships or aircraft used to deliver goods or transport passengers, salespersons’ automobiles owned by a company, or a farmer’s production machinery such as tractors and field equipment. PPE assets are tangible assets because they can be physically touched. There are other types of non-current assets that are intangible—existing only as legal concepts—such as copyrights and patents. These will be discussed later in this chapter.
A long-term asset can be considered a bundle of future benefits that will be used up over a period of years. Each year, a pre-determined portion of these benefits is allocated to expense on the income statement. This concept was briefly introduced in Chapter 3. It will be examined more fully in this chapter.
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