Property, plant, and equipment (PP&E)
Also known as: pp&e, fixed assets, tangible non-current assets
Property, plant, and equipment (PP&E) are the long-lived tangible assets a company uses to run its business, such as land, buildings, machinery, and vehicles. They appear on the balance sheet at cost less accumulated depreciation.
Property, plant, and equipment are tangible assets held for use in producing goods or services, renting to others, or administration, and expected to be used for more than one accounting period. Because they are consumed over years rather than sold in the ordinary course of business, they sit in non-current assets on the balance sheet rather than in inventory.
PP&E is initially recorded at cost, which includes the purchase price plus everything necessary to bring the asset to its working condition and location — delivery, installation, testing, and non-refundable duties. After acquisition, the cost is allocated to expense over the asset's useful life through depreciation, using methods such as straight-line, declining balance, or units of production. The balance sheet then reports carrying value: cost minus accumulated depreciation. Land is the standard exception — it is not depreciated because it has an indefinite useful life.
Two further distinctions matter in practice. Capital expenditure — spending that extends an asset's life or increases its capacity — is added to the asset's carrying amount, while routine repairs and maintenance are expensed immediately. And when an asset's recoverable amount falls below its carrying value, the company writes it down through an impairment charge. Because PP&E is often the largest item on a manufacturer's balance sheet, these judgments materially affect reported profit and asset-based ratios such as return on assets and asset turnover.
PP&E is examined in the external financial reporting section of CMA Part 1 and in ACCA Financial Accounting, where you should be able to compute initial cost, apply a depreciation method, distinguish capital from revenue expenditure, and record a disposal or revaluation. Expect both calculation questions and conceptual questions about which costs may be capitalized.
Key takeaways
- PP&E are long-lived tangible assets used in operations, reported as non-current assets.
- Initial cost includes purchase price plus all costs of getting the asset ready for use.
- Carrying value equals cost less accumulated depreciation; land is not depreciated.
- Capital expenditure is capitalized, while routine repairs and maintenance are expensed.
- Impairment writes the asset down when its recoverable amount falls below carrying value.