Property, plant, and equipment (PP&E) are tangible assets owned and used by the company in normal business operations for more than one period. They are long-term assets that have physical substance. Some people call them as fixed assets or factory assets. Examples include land, buildings, equipment, factories, machinery, vehicles, furniture, fixtures, and office equipment.
PP&E is vital for the company’s operations. It gives the company the resources to produce its products or to provide services. Meanwhile, other equipments such as computers and office supplies are essential for administrative activities.
Calculation
In a financial balance sheet, we can find them in the non-current assets section. They are reported on the balance sheet as acquisition costs less accumulated depreciation.
Net PP&E = Gross PP&E + Capital expenditure – Accumulated depreciation
To calculate net PP&E, you need to add up the gross PP&E listed on the balance sheet with capital expenditure. Then, reduce the result by accumulated depreciation.
Depreciation costs from PP&E are fixed costs because of independent from production volume.
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