Property, Plant, and Equipment Disclosures

Definition

The financial accounting term property, plant and equipment disclosures refer to the minimum information companies must divulge on their financial statements.  Disclosure requirements fall into four categories:  cost, accumulated depreciation, service lives, depreciation methods, capitalization thresholds, and restrictions.

Explanation

The basis used by companies in the valuation of property, plant and equipment appearing on the asset section of the balance sheet is typically historical cost.  Property, plant and equipment not being used in production, but held for investment purposes, such as land and buildings, should be categorized as such.

Depreciation is used to account for the lowering of an asset's value as its usefulness is consumed over time.  The contra asset account, accumulated depreciation allows the reader of a financial statement to understand how much expense has flowed to the income statement from the balance sheet.  By displaying both the historical cost of assets as well as the total accumulated depreciation, the reader of a financial statement can also understand the remaining net plant, whereby:

Net Plant = Historical Cost - Accumulated Depreciation

In addition to the above property, plant and equipment information, FASB No. 6, requires companies to disclose the following for each major class of assets:  book value, estimated useful lives, the method(s) of depreciation used, and capitalization threshold(s).

Finally, companies must disclose any restrictions on the use or convertibility of these assets.

Related Terms

balance sheet, historical cost, depreciation expense, accumulated depreciation, contra account, property, plant, and equipment