Question

Discuss the relevance of the company's Fixed Assets (PP&E) to their core business, and how Fixed Assets (PP&E) help the company in its business.

Answer 1

'Property, Plant, and Equipment (PP&E)'

Property, plant, and equipment (PP&E) are long-term assets vital to business operations and not easily converted into cash. The total value of PP&E can range from very low to extremely high compared to total assets. International accounting standard (IAS) 16 prescribes the accounting treatment of PP&E. Factors that cause PP&E to be listed separately on the balance sheet are how they are recognized as assets, how their carrying amounts are determined, and their associated depreciation charges.

PP&E are physical, tangible assets expected to generate economic benefits for a company for a period of longer than one year. Examples of PP&E include land, buildings, and vehicles. Industries or businesses that require a large number of fixed assets are described as capital intensive.

The PP&E formula is Net PP&E= Gross PP&E + Capital Expenditures-Accumulated depreciation.

While PP&E is generally meant to be held and used by the company in the course of its business, it is considered an asset because it can be liquidated. For example, PP&E may be liquidated when they are no longer of use or when the company may experience financial difficulties. Of course, selling property, plant, and equipment necessary for business operations could be drastic and signal that a company is in financial trouble. It is important to note that whatever the reason a company has in selling some of its property, plant, or equipment, it is unlikely that a company will make a profit on the sale of the asset.

Information about a corporation's assets helps create accurate financial reporting, business valuation, and thorough financial analysis. Investors and creditors use these reports to determine a company's financial health and to decide whether to buy shares in or lend money to the business.