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Plant Assets: Definition & Accounting Issues

Plant Assets: Definition & Accounting Issues
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  • 0:04 What Is a Plant Asset?
  • 0:52 Examples of Plant Assets
  • 1:51 How to Account for…
  • 2:41 Lesson Summary
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Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Companies have a number of different types of assets that they have to keep track of. In this lesson, we'll see how companies account for plant assets, which ranges from construction sites to delivery trucks.

What Is a Plant Asset?

Are you at work? Good. Look around your company. Chances are, you see plenty of people. Now, snap your fingers and make them disappear! In fact, go ahead and snap your fingers again to make all the raw materials disappear, and once more to make the electricity that powers your machinery go away (feel free to leave the lights on, however!).

What you're left with are all the machines, land, equipment, and buildings used to produce your goods. In short, these are called plant assets. Technically speaking, anything that is used to make money that has both a useful life of more than a year and doesn't directly become part of the product itself is a plant asset. In this lesson, we'll look at examples of plant assets, as well how accounting for them requires special attention.

Examples of Plant Assets

Like I said earlier, if you take a look around your company and remove all of the people and raw materials, you'll have a pretty good idea of what plant assets consist of. Specifically, these assets include all the machines, computers, buildings, and even land owned and used by the company.

However, it's not only these physical items that you can touch. Let's say that you have an agreement to rent a location but as part of the lease agreement, you can make improvements as you see fit to carry out your business, an arrangement called a leasehold improvement agreement. Unless the lease expires (which would cause the ownership of said improvements to revert to the owner of the building), you get to count those improvements towards your plant assets as well.

In fact, even sites that are currently under construction for your company can be considered plant assets. In other words, there are quite a number of categories to which the term 'plant asset' could apply. Which brings us to the question: How are plant assets accounted for?

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