Property, Plant, and Equipment
This chapter lists the characteristics of plant assets and the costs of acquiring them, the major factors affecting depreciation expense, and the methods used to calculate it. It distinguishes capital from revenue expenditures and describes the subsidiary records used to control plant assets, plus the rate of return on operating assets.
Acquiring property, plant, and equipment
Plant assets are long-lived resources used in operations rather than held for resale, and their recorded cost includes all reasonable and necessary expenditures needed to get the asset into working condition and location, not just its purchase price. The chapter identifies which costs are capitalized into the asset’s recorded cost and which are instead expensed immediately as incurred.
Depreciation methods
Depreciation expense depends on an asset’s cost, its estimated salvage value, its estimated useful life, and the pattern in which the asset is expected to be used over that life. The chapter works through the various methods available for calculating depreciation and shows how the choice of method affects both reported expense and the asset’s carrying value over time.
Capital versus revenue expenditures, and control records
A capital expenditure extends an asset’s useful life or increases its capacity and is added to the asset’s recorded cost, while a revenue expenditure merely maintains normal operating condition and is expensed immediately instead. The chapter also describes the subsidiary ledgers used to track individual plant assets, and the rate of return on operating assets used to evaluate how effectively property, plant, and equipment is being used.