Understanding Plant Assets: One Characteristic of Plant Assets is that they are

One Characteristic of Plant Assets is that they are

In the world of accounting, plant assets hold a special place. They’re the long-term, tangible assets used in the operation of a business. From machinery to office equipment, these are the workhorses that keep a business running day in and day out.

But there’s one characteristic of plant assets that sets them apart. They’re not just any old assets – they’re depreciable. That’s right, unlike other assets, plant assets lose value over time. It’s a concept that’s as intriguing as it is essential for any business owner to understand.

Tangible

We’ve now established that plant assets are unique in the realm of business resources. Yet, one of the fundamental aspects we need to discuss is that plant assets are tangible. Unlike intangible assets such as patents, trademarks, and copyrights, plant assets have a physical presence and play a critical role in the operation of a business. They’re not merely a piece of paper or an idea — they’re something tangible that you can see, touch, and interact with.

Durable

Firstly, it’s important to grasp that plant assets are Durable. By this, I mean plant assets aren’t something you utilize once and then discard. They have a lifespan that extends for more than one fiscal year. Typically this includes assets like machinery, building structures, office equipment, and vehicles. Given their durable nature, these assets are accounted for differently in a company’s financial statements.

Let’s understand the durability associated with plant assets in a table format. The following table summarizes the estimated lifespan of key plant assets:

We see that plant assets have varied durations of utility, but all have a significant life span going beyond just a year.

Physical in Nature

Secondly, another characteristic of plant assets is that they are Physical in Nature. This is key. When I talk about plant assets, I’m not discussing shares of stock or IOU notes. Plant assets are items you can physically touch and see, such as a company’s machinery or its real estate. These assets are essential for optimal operation in any business, whether they help produce goods or facilitate key services.

Remember, these tangible, physical assets are not ephemeral. They don’t disappear after one use, and they don’t exist only in theory or paper. They are concrete, visible aspects of your business that contribute to both your company’s value and its day-to-day functions.

Let’s move on to understand why these physical, tangible plant assets face depreciation over time.

Long-term

An integral facet of plant assets is their Long-term nature. They’re not immediate-income generators. Instead, they’re strategic, durable resources designed for extended utility.

Used Over More Than One Accounting Period

When it comes to the period of usage, it’s important to underscore how plant assets differ from current assets. Things like cash, accounts receivable, and inventory are current assets. They’re expected to be completely consumed or sold within a single accounting period. Plant assets, on the other hand, are used in operations over multiple accounting periods.

Take, for instance, machinery. Once bought, it’s not going to make a quick exit from the balance sheet after a few uses. It’s embedded into the production process, playing a crucial role in generating revenue and overall profitability for more than a fiscal year.

Remember, that durability is embedded in the definition of a plant asset. It’s a hallmark characteristic that sets them apart from other business resources.

Provide Future Economic Benefits

This is where the strategic aspect of plant assets comes into play. They’re not just there to fill up space. Plant assets are vital tools used to provide future economic benefits to the business.

Firstly, they provide a means of generating revenue. Let’s take a logistics business as an example – their fleet of trucks (a plant asset) allows them to offer services and earn money.

Secondly, they improve overall efficiency. For a manufacturing business, a new computerized production line can not only increase output but also lower cost per unit thanks to increased efficiency.

Thirdly, plant assets can offer strategic advantages. A business that owns its office premises outright (another plant asset) is not only saving on rental costs but also has security of location.

As you can envision, the implications of plant assets extend beyond their mere physical presence. Their long-term usage and expected provision of future benefits make them pivotal in the trajectory of a successful business. Plant assets are indeed investments in the true sense of the word – investments into the future success of the business.