Property, Plant, and Equipment (PP&E) Definition Property, plant, and equipment (PP&E) are tangible, long-term assets a business uses in operations and that are not expected to be converted into cash within a year. Common examples include land, buildings, machinery, vehicles, and equipment. PP&E is often called fixed assets. Why PP&E Matters
* PP&E represents investments in the business’s productive capacity and is a key indicator of long-term operational commitment.
* These assets are generally illiquid but can be used as collateral for financing.
* Investors and creditors examine PP&E (and related depreciation) to assess capital intensity, asset age, and future maintenance or replacement needs.
How PP&E Is Measured Net PP&E is the carrying amount reported on the balance sheet and reflects the asset cost less cumulative depreciation (and impairments). A common presentation: Explore More Resources

Net PP&E = Gross PP&E (cost) + Capital expenditures (additions) − Accumulated depreciation − Impairments Notes:
“Gross PP&E” or “Cost” includes purchase price and expenditures necessary to get the asset ready for use (installation, delivery, improvements).
 Capital expenditures (CapEx) are additions or major improvements that extend an asset’s useful life or capacity.
Accumulated depreciation is the sum of depreciation expense recorded over the asset’s life (except for land, which is not depreciated).
 Impairments reduce carrying value when asset recoverable amounts decline significantly. Explore More Resources

Example A company owns an existing building originally recorded at $1,000,000 with accumulated depreciation of $600,000. It purchases another building for $1,000,000 and records $30,000 of depreciation on the new asset. Net PP&E for the two buildings: $1,000,000 + $1,000,000 − $600,000 − $30,000 = $1,370,000 Explore More Resources

How PP&E Is Accounted For
* Initial recognition: record at cost (purchase price plus costs to prepare the asset for use).
* Subsequent measurement: depreciate depreciable assets (buildings, machinery, equipment) over their estimated useful lives using an appropriate method (straight-line, declining balance, units of production, etc.).
* Land is carried at cost and is not depreciated; it may be revalued if accounting policies permit or an impairment/impairment reversal occurs.
* Improvements that extend useful life or increase capacity are capitalized; routine repairs and maintenance are expensed.
Recording and Reporting
* The book value on the balance sheet reflects historical cost less accumulated depreciation and impairments.
* PP&E excludes intangible assets (patents, copyrights) and current assets (cash, inventory).
* Disclosures typically include gross carrying amounts, accumulated depreciation, accumulated impairments, depreciation methods and rates, and capital commitments.
Limitations and Considerations
* Book value may differ materially from market value or replacement cost.
* Depreciation involves estimates (useful life, residual value) that affect reported profits and asset values.
* Large PP&E balances imply capital intensity and potential future cash requirements for maintenance and replacement.
* Evaluate PP&E alongside other balance sheet and cash flow items to assess financial health.
Key Takeaways
* PP&E are tangible long-term assets used in operations and not readily convertible to cash.
* Net PP&E equals cost (gross PP&E plus additions) minus accumulated depreciation and impairments.
* Land is not depreciated; other assets are depreciated over their useful lives.
* PP&E provides insight into a company’s capital investment strategy, operational capacity, and future capital needs, but book values are subject to estimation and may not reflect current market values.