Plant Assets: What Are They and How Do You Manage Them?

what are plant assets

This method implies charging the depreciation expense of an asset to a fraction in different accounting periods. This method explains that the utility and level of economic benefit decrease as the age of asset increases. In this article, we will talk about non-current tangible assets and, specifically the plant assets. The article will be all about plant assets, their recognition, depreciation, and differentiation from other asset classes. An asset, on the other hand, is an intangible asset such as a building or a piece of land.

what are plant assets

Intangible assets are non-physical assets that have a monetary value since they represent potential revenue. Patents, copyrights, and other intangible assets are included in the definition of intangible assets. A plant asset is an asset with a useful life of more than one https://www.kelleysbookkeeping.com/how-to-read-a-statement-of-cash-flows/ year that is used in producing revenues in a business’s operations. These assets are significant for any business entity because they’re necessary for running operations. Besides, there is a heavy investment involved to acquire the plant assets for any business entity.

Module 9: Property, Plant, and Equipment

Plant assets represent the asset class that belongs to the non-current, tangible assets. The plant assets’ economic benefits last for more than one year. These assets are used for operating the business functions and generating revenues in the financial periods. The plant assets are often synonymously termed fixed assets. These assets are a subset of the fixed assets classification, which includes such other asset types as vehicles, office equipment, and intangible assets. Plant assets fulfill the usual criteria for a fixed asset, which means that their initial cost exceeds the capitalization limit of the entity, and they are expected to be used for at least one year.

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  2. The actual use of a plant asset is what causes physical depreciation.
  3. 18,000 USD must be charged to the plant asset account for every financial year as a depreciation expense.

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Fixed assets include buildings, land, buildings and land improvements, machinery, equipment and other fixed capital assets. The major characteristics of plant assets are that they are acquired for use in operations and not for resale, that they are long-term in nature, and that they have physical substance. Depreciation is the process of deducting a portion of an asset’s value from its purchase price and then paying the difference to the original owner. This process is known as depreciation and is used by companies to determine the fair market value (FMV) of their assets. The second method of deprecation is the declining balance method or written down value method.

Let’s skim through the concept of depreciation for the plant assets. Depreciation is the periodic allocation of an asset’s value(cost) over its useful life. The basic principle working behind the depreciation of assets is the matching principle. The matching principle states that expenses should be recorded in the same financial year when the revenue was generated against them.

What is a plant asset?

The company’s top management regularly monitors the plant assets to assess any deviations, discrepancies, or control requirements to avoid misuse of the plant assets and increase the utility. Later on, the company will charge the depreciation according to the method of depreciation it usually follows. 18,000 USD must be charged to the plant asset account for every financial year as a depreciation expense. In the balance sheet of the business entity, these assets are recorded under the head of non-current assets as Plant, property, and equipment. The assets can be further categorized as tangible, intangible, current, and non-current assets.

This type of depreciation can be avoided by replacing the old car with a newer model that is more fuel-efficient, or by purchasing a used car from a dealer. For example, a new plant may be valued at $100,000, but if it is expected to last 10 years, it may cost $1 million to build and maintain. A plant with a 10-year life may have a value between $10 million and $20 million, depending on how long it will be used and how much maintenance is required to keep it in good working order.

Depreciation On Plant Assets

Anything that can be used productively to general sales for the company can fall into this category. Plant assets and the related accumulated depreciation are reported on a company’s balance sheet in the noncurrent asset section entitled property, plant and equipment. Accounting rules also require that the plant assets be reviewed for possible impairment losses.

The bookkeeper would record the transaction by debiting the plant assets account for $100,000 and crediting the cash account for the same. Any land maintenance, improvement, renovations, or construction to increase building operations or revenue generation capacity are also recorded as part of the plant assets. For example, an office building is fixed and cannot be changed.

Plant assets are a group of assets used in an industrial process, such as a foundry, factory, or workshop. Vehicles, office equipment, and buildings are included in the subcategories of the fixed assets classification. The fixed asset classification is used to categorize the assets in a company’s balance sheet. bookkeeping 101 Fixed Assets are assets that are fixed in nature and are not subject to change. The name plant assets comes from the industrial revolution era where factories and plants were one of the most common businesses. This category of assets is not limited to factory equipment, machinery, and buildings though.