Property, plant, and equipment

Definition

Property, plant, and equipment (PP&E) are long-term tangible assets used in the production of income. These assets are subject to depreciation over their useful lives.

5 Must Know Facts For Your Next Test

1. PP&E is listed on the balance sheet under non-current assets.
2. Depreciation expense related to PP&E reduces net income and reflects the wear and tear of these assets.
3. The cost of acquiring PP&E includes purchase price, delivery, installation, and any other costs necessary to bring the asset to its intended use.
4. Impairment occurs when the carrying amount of PP&E exceeds its recoverable amount, requiring a write-down.
5. PP&E impacts liquidity ratios such as the current ratio indirectly through depreciation expenses.

Related terms

Depreciation:

The systematic allocation of the cost of a tangible asset over its useful life.

Impairment:

A permanent reduction in the value of an asset below its carrying amount.

Non-current Assets: Long-term investments or assets that are not expected to be converted into cash within one year.