Property, plant and equipment – What is it, definition and concept | 2022

That is to say, the tangible fixed assets groups those goods that can be seen and touched, and that allow the company to develop its economic activity.

When we refer to tangible fixed assets, we refer to elements as simple as buildings, cars or office furniture.

It is important to bear in mind that this type of asset must belong to the company to be considered as such, and must also participate directly or indirectly in the production process, be it services or the production of goods.

Then, on the one hand, we can say that the building that we use to carry out our business activity is tangible fixed assets. But, on the other hand, we cannot say that the home of the CEO of the company can be considered an asset of the company, since, firstly, it is normal for it to be owned by the person, and, secondly, not intervenes in the production process.

In other words, it is not a commercial asset in which we have stocks and we have to sell them periodically, but rather they are elements of the company that normally last for several years.

Characteristics of property, plant and equipment

Within the asset, fixed assets play a fundamental role, since it is usually one of the items with the highest accounting value in almost any company.

Specifically, tangible fixed assets are key in those companies that base their activity on producing goods. This, since the companies that are dedicated to offering services are more oriented to enhance their intangible assets.

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On the other hand, in tangible assets there are a series of very specific characteristics in this class of items, such as amortization and impairment, among other adjustments.

First, an amortization accounting entry would look like this:

one

Second, an entry related to the occurrence of an impairment could be reflected at the accounting level as follows:

two

As can be seen, the accounting entries are quite simple. The reason why the value of the asset account itself is not directly subtracted is because an account is created that records all these reductions and then, in the balance itself, subtracts them.

In other words, if on balance sheet we have an asset of €1,000 and we have an accumulated depreciation of €100, in the end our asset has a book value of €900.

Examples of property, plant and equipment

Some of the most common and most important items in terms of property, plant and equipment on the balance sheet are:

  • lands.
  • Buildings.
  • Machinery.
  • Furniture.
  • Computer equipment.
  • Transportation elements.

These accounts are not lacking in any company, whatever its activity. The difference lies in the weight that each one of them has depending on the sector (primary, secondary or tertiary) of the company or entity.

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