Property, Plant, and Equipment

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'''Property, Plant, and Equipment is the total value of a business' most essential assets, which cannot easily be liquidated''' '''Property, Plant, and Equipment is the total value of a business' most essential assets, which cannot easily be liquidated'''
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==Example== ==Example==
*Oil and Gas Co XYZ decides to build [[Oil & Gas Drilling & Exploration|oil rigs]] on a drilling site. The cost of the rigs is added to PP&E on the [[balance sheet]] and each year that they are in use their value [[Depreciation|depreciates]] some amount to reflect their useful life. Once the well is depleted, the rigs lose almost all of their value as they were built for a specific purpose in a specific location and cannot easily be moved or deconstructed and rebuilt. They can be sold as scrap metal, but it is highly unlikely XYZ can resell these rigs for anything close to their initial costs. *Oil and Gas Co XYZ decides to build [[Oil & Gas Drilling & Exploration|oil rigs]] on a drilling site. The cost of the rigs is added to PP&E on the [[balance sheet]] and each year that they are in use their value [[Depreciation|depreciates]] some amount to reflect their useful life. Once the well is depleted, the rigs lose almost all of their value as they were built for a specific purpose in a specific location and cannot easily be moved or deconstructed and rebuilt. They can be sold as scrap metal, but it is highly unlikely XYZ can resell these rigs for anything close to their initial costs.
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Revision as of 16:01, April 15, 2009

Property, Plant, and Equipment is the total value of a business' most essential assets, which cannot easily be liquidated

Property, plant & equipment (PP&E) are those assets essential to the company's business including (as the name suggests) the property on which the company does business and the equipment essential for the business' continued operations. Often, PP&E assets are tailored to be production specific and as such have little resale value. Over time, the value of these assets are generally depreciated to more accurately reflect their current worth to the company. The term "fixed assets" is often used in place of "property, plant and equipment" and the two terms are functionally equivalent.

It should be noted that while most PP&E assets (such as motor vehicles or computers) depreciate over time, land and buildings can often increase in value depending on local real-estate conditions.

Property, Plant, and Equipment are listed along with Long-Term Investments and Intangible Assets as non-current assets on a company's balance sheet.

Example

  • Oil and Gas Co XYZ decides to build oil rigs on a drilling site. The cost of the rigs is added to PP&E on the balance sheet and each year that they are in use their value depreciates some amount to reflect their useful life. Once the well is depleted, the rigs lose almost all of their value as they were built for a specific purpose in a specific location and cannot easily be moved or deconstructed and rebuilt. They can be sold as scrap metal, but it is highly unlikely XYZ can resell these rigs for anything close to their initial costs.
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