PP&E, Fixed Assets, and Capitalized Interest

PP&E / Fixed Assets Introduction

  • Definition: Property, Plant, and Equipment (PP&E), also known as fixed assets, are tangible assets required for use in the business, not for resale.

  • Nature: These are long-term physical assets, classified as non-current assets.

  • Depreciation: All fixed assets, with the exception of land, are subject to depreciation, which is recognized according to the matching principle.

  • Presentation: PP&E items must be shown separately on the balance sheet or in the footnotes at their historical cost.

Types of PP&E and Depreciation

  • Land:

    • Is not subject to depreciation.

  • Land Improvements:

    • Are subject to depreciation.

    • Examples include fences, water systems, sidewalks, paving, landscaping, and lighting.

  • Buildings:

    • Includes plant, factories, warehouses, and office buildings.

    • Are subject to depreciation.

  • Equipment:

    • Includes machinery, tools, furniture, and fixtures.

    • Are subject to depreciation.

  • Accounting Method (US GAAP):

    • Under US GAAP, fixed assets are presented on the balance sheet using the cost method.

    • This is calculated as historical cost minus accumulated depreciation.

    • No