Chapter 10

Accounting for Property, Plant and Equipment

Introduction

Property, plant and equipment (PP&E) is defined as tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. They are expected to be used for more than one year. In this chapter we look at the accounting for PP&E by examining the financials of McDonald’s Corporation. The following discussion applies to both US GAAP and International Financial Reporting Standards (IFRS), unless otherwise noted. This chapter also discusses intangible assets.

PP&E is usually reported on the balance sheet at historical cost (in the case of land) or at historical cost less accumulated depreciation (for depreciable assets such as buildings and machinery). At the end of 2009, McDonald’s reported PP&E with an historical cost of $33.4 billion and $11.9 billiom of accumulated depreciation – see Table 10.1. The resulting net book value, $21.5 billion, represents 71% of total assets. Such a high figure is common in capital intensive businesses like McDonald’s.

Table 10.1 McDonald’s Corporation - assets (in millions, US$)

2009/12/31 2008/12/31
Current assets
Cash and equivalents $1,796.0 $2,063.4
Accounts and notes receivable 1,060.4 931.2
Inventories, at cost, not in excess of market 106.2 111.5
Prepaid expenses and other current assets 453.7 411.5
Total current assets 3,416.3 3,517.6
Other assets
Investments in and advances to affiliates ...

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