Chapter 21. PROPERTY, PLANT, EQUIPMENT, AND DEPRECIATION

Richard H. Moseley

American Express Tax and Business Services, Inc.

NATURE OF PROPERTY, PLANT, AND EQUIPMENT

(a) DEFINITION.

Property, plant, and equipment are presented as noncurrent assets in a classified balance sheet. The category includes such items as land, buildings, equipment, furniture, fixtures, tools, and machinery. It excludes intangibles and investments in affiliated companies.

(b) CHARACTERISTICS.

Property, plant, and equipment have several important characteristics:

  • A relatively long life

  • The production of income or services over its life

  • Tangibility—having physical substance

(c) AUTHORITATIVE LITERATURE.

Generally accepted accounting principles (GAAP) for property, plant, and equipment have evolved without the promulgation of any Level A or B GAAP rule making on a comprehensive basis. Because of this lack of authoritative literature, many believe that diversity in practice has developed with respect to both the type of costs capitalized and the amounts. In June 2001, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued an exposure draft of a Statement of Position (SOP) titled "Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment." Although a final statement has not yet been adopted, many of the concepts and practices discussed in the following pages may be significantly affected when the SOP is finalized. See Section ...

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