This means when a piece of equipment is purchased an expense isn’t immediately recorded. Since the machine is exclusively used for business activities to produce taxable supplies, the business can claim ITC on the ₹3,60,000 GST paid. This credit helps reduce the company’s future GST liability on sales. There are different methods of depreciation that a business entity can use. Many business entities use different depreciation methods for financial reporting and tax purposes. Its accounting definition could be identified in IAS 16 Property, Plant and Equipment.

Understanding Plant Assets: Definition, Examples, and Management Strategies

Depreciation spreads the cost of a plant asset over its useful life. This process matches part of the asset’s cost to each year it helps generate revenue. There are several methods to calculate depreciation, but all reflect how assets lose value over time. Current assets are expected to be used within a year or short-term time frame. Current assets typically include cash, inventory, accounts receivable, and other short-term liquid assets. In contrast, plant assets represent long-term property expected to be around payroll for at least a year, often quite a bit longer than that.

Depreciation on Tax Component

We hope you’ll know the difference between plant assets and other non-current assets and the accounting treatment. This method implies charging the depreciation expense of an asset to a fraction in different accounting examples of plant assets periods. This method explains that the utility and level of economic benefit decrease as the age of asset increases.

• Input Tax Credit (ITC) is allowed if capital goods are used exclusively for taxable supplies.
• ITC is ineligible if the tax component is included in the depreciation claimed under the Income Tax Act, as double benefits are not permitted.
• In this article, we will talk about non-current tangible assets and, specifically the plant assets.
• A plant asset should be recognized at its costs when it fully meets the definition above by IAS 16.
• The bookkeeper would record the transaction by debiting the plant assets account for $100,000 and crediting the cash account for the same.

What is asset? Definition, Explanation, Types, Classification, Formula, and Measurement

A plant asset is any asset that can be utilized to produce revenue for your company. Plant assets are goods that are considered long-term assets because of their high price or worth, even if the assets depreciate. It’s crucial to recognize which of your assets are plant assets, regardless of their worth. The goods you can include in this category are usually useful assets that help your business well.

Frequently Asked Questions (FAQs)

Any land maintenance, improvement, renovations, or construction to increase building operations or revenue generation capacity are also recorded as part of the plant assets. In this article, we will talk about non-current tangible assets and, specifically the plant assets. The article will be all about plant assets, their recognition, depreciation, and differentiation from other asset classes. In actual practice, it is not only difficult but impractical to identify how much of the plant assets have actually been used to produce business revenue. Hence, we will calculate depreciation proportionately based on the useful lives of the plant assets.

Industries or businesses that require extensive fixed assets like PP&E are described as capital intensive. Depreciation allocates the cost of a tangible asset over its useful life and accounts for declines in value. The total amount allocated to depreciation expense over time is called accumulated depreciation. Land assets are not depreciated because of their potential to appreciate and are always represented at their current market value. Property, plant, and equipment (PP&E) are long-term tangible assets vital to business operations. The overall value of a company’s PP&E can range from very low to extremely high compared to its total assets.

Current assets versus plant assets

• As a result, Exxon would be considered a capital-intensive company.
• Depreciation is the process by which a plant asset experiences wear and tear over a particular period of time.
• They include machinery, equipment, and buildings needed to make products or provide services.
• Depreciation is the periodic allocation of an asset’s value(cost) over its useful life.
• Each of these types is classified as a depreciable asset since its value to the company and capacity to generate income diminishes during the asset’s useful life.
• The assets can be further categorized as tangible, intangible, current, and non-current assets.
• In this article, we’ve explained the concept of plant assets in very detail.

On the other hand, the borrowed money is the liability or obligation for the business entity. Depending on the industry and purpose of a company, a number of items might now qualify as plant assets. As we continue to walk our way down the balance sheet, we come to noncurrent assets, the first and most significant of which is PP&E. At almost $23 billion, PP&E composes almost half of the total assets of $51 billion. No—different businesses have different kinds of plant assets depending on what products or services they offer. Plant assets are long-term physical items a company owns and uses to make its products, like buildings, machines, and equipment.

• Plant assets (other than land) are depreciated over their useful lives and each year’s depreciation is credited to a contra asset account Accumulated Depreciation.
• Plant assets are deprecated over their useful lives using the straight line or double declining depreciation methods.
• Like any category of assets, it’s critical to evaluate plant assets on a company-by-company basis.
• Naturally, the initial purchase of the plant asset would be an outflow of cash, any subsequent sales would be a cash inflow.
• They normally show up as the first line item under non-current assets.

What PP&E Value Means

From there, companies within an industry can often be easily compared. Depending on the industry, plant assets may make up either a very substantial percentage of total assets, or they may make up only a small part. Plant assets must also be reviewed for impairment at regular intervals. We should be wary of any indications of impairment such as a downturn in business which suggests that the plant assets may not be able to generate as much value as they could before. Managing these property assets takes a mix of smarts and hard work.