Acquisition of Property, Plant & Equipment

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  • 0:04 Company Acquisitions
  • 1:00 Property, Plant, & Equipment
  • 2:28 Recording Acquisition
  • 3:15 Journal Entry Example
  • 3:34 Lesson Summary
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Lesson Transcript
Instructor: Angie Tucker

Angie has trained corporate users in the fundamentals of accounting software and has a master's degree in business management.

Long-term assets can be broken down into several categories. One category is called property, plant, and equipment. This lesson will concentrate on the acquisition of property, plant, and equipment.

Company Acquisitions

Imagine your friend Ella is about to open a new pet grooming shop. Ella begins to brainstorm all the items she needs to purchase for her new shop. Ella's list looks something like this:

  • Dog treats
  • Cat treats
  • Dog hair bows
  • Leashes
  • Pet shampoo and fragrance

So far, Ella has a good list. These items will surely help, but what about the long-life resources she will need in order to have continuous operations? These owned resources are called property, plant, and equipment. Property, plant, and equipment are considered long-term, tangible assets because they should benefit the business for more than one year.

The purchases of property, plant, and equipment could be Ella's biggest and most important decisions related to her new pet grooming shop. Let's go over examples and discuss more reasons why property, plant, and equipment are so important for the operation of a business.

Property, Plant, and Equipment

Land purchased for a business is an example of property. In the above example, Ella may want to purchase enough land to allow for a building and a small dog park area. The dog park will be a nice, secure place for the animals visiting her shop to walk around before or after their appointment. While considering property, Ella must take into account the location and the price. As you can see, this purchase is very important for the success of Ella's shop, and it should benefit her business for many years.

Examples of plant include a building acquired to house a business, a storage building used to store inventory, and any other building purchased by the business to help provide continuous operation. In our dog grooming example, Ella will need to purchase or construct a building to house her shop. She must consider the type, size, and price of the building. This decision is very important, as it will likely be her most expensive purchase. Like property, plant is also tangible and will benefit the business for more than one year.

Looking over her list, Ella realizes she forgot about the equipment needed to provide an awesome grooming experience. She will need special fur-drying machines, tools for shearing, a cash register, and a computer to keep track of her appointments and customer information. These are all examples of equipment. Ella should do research on the types and brands of equipment she will need. She should consider equipment with high quality and fair prices. Equipment must be tangible, and it should benefit the business for, you guessed it, over a year.

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