Property, Plant and Equipment (PP&E)

Beginner

Also known as: PP&E

Property, plant and equipment (PP&E) are the physical, long-term assets a business uses to produce goods or services, such as land, buildings, machinery, vehicles and computers.

PP&E are also called fixed assets. They are expected to be used for more than one year and are not intended for sale in the normal course of business.

On the balance sheet, PP&E are usually shown at their original cost minus accumulated depreciation and any impairment, giving net PP&E. Land is not depreciated, but buildings, machinery and equipment are, because they wear out or become outdated. Under IFRS, companies may choose instead to show some PP&E at revalued amounts.

For example, a factory might report PP&E with a cost of 12 million and accumulated depreciation of 5 million, giving a net book value of 7 million.

PP&E are especially large for capital-intensive businesses, such as manufacturers, airlines, utilities and telecommunications companies. Investors watch how much a company spends on new PP&E, known as capital expenditure, compared with depreciation. Spending far less than depreciation for long periods can mean assets are ageing and may soon need costly replacement.

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