18 Jun What are Plant Assets?
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A plant asset helps a company to produce the goods and services that it supplies to its customers. Land, machinery, computers, buildings, and office equipment are examples of plant assets. To be classified under this category, an asset should have a useful life of more than one year.
Plant assets are also referred to as fixed assets or plant and equipment. Firms use these assets to produce the goods that they sell.
What do plant assets mean?
A plant asset is recorded at its cost in the company’s books of accounts. It is depreciated over the course of its useful life. The depreciation entry that is made every year debits the income statement account and credits the accumulated depreciation account, which is a balance sheet account.
Remember that the only plant asset that is not depreciated is land. That’s because the land owned by a company will continue to remain useful indefinitely. Its value does not decrease over time.
The White Plains Manufacturing Company makes and supplies abrasive cutting wheels to industrial customers. It buys a new cutting disc and grinding wheel making machine at a cost of $500,000. The useful life of this machine is expected to be ten years.
Example of plant assets
The new plant asset is recorded at a value of $500,000 in the books of accounts of the company. As its useful life is expected to be ten years, it is depreciated at $50,000 per year. After the period of ten years is over, the value of the machine will be zero in the company’s books.
Manufacturing companies usually invest large amounts in plant assets. For example, a new factory being set up to produce steel would need to invest many millions of dollars in land and equipment. Companies that operate in the service industry usually have “asset-light” models. A tech firm could fall into this category.