Definition: A plant asset; also called property, plant, and equipment; is a long-term fixed asset that is used to produce or sell products and services for the company. These assets are tangible in nature and are expected to produce benefits for more than one year.
What Does Plant Asset Mean?
The name plant assets comes from the industrial revolution era where factories and plants were one of the most common businesses. This category of assets is not limited to factory equipment, machinery, and buildings though. Plant assets can include vehicles, fixtures, and land. Anything that can be used productively to general sales for the company can fall into this category.
Since these assets produce benefits for more than one year, they are capitalized and reported on the balance sheet as a long-term asset. This means when a piece of equipment is purchased an expense isn’t immediately recorded. Instead, the cost of the asset is allocated over its useful life. This is consistent with the matching principle.
Plant assets are deprecated over their useful lives using the straight line or double declining depreciation methods. Let’s take a look at an example.
Tom’s Machine Shop is a factory that machines fine art printing presses. One of the CNC machines broke down and Tom purchases a new machine for $100,000. The bookkeeper would record the transaction by debiting the plant assets account for $100,000 and crediting the cash account for the same.
Based on his experience and knowledge of this equipment, Tom estimates that this machine will have a useful life of 10 years. This means, based on the straight-line method, Tom will allocate 1 / 10 of the cost of this machine to each year of its useful life. The bookkeeper would record depreciation expense for the first year by debiting the depreciation expense account for $10,000 and crediting the accumulated depreciation account for the same. This process is done every year until the book value of the machine is zero.