 In this presentation, we will discuss property, plant, and equipment. Note that property, plant, and equipment may be called plant assets or depreciable assets. And property, plant, and equipment will include things that are tangible, tangible, meaning we can actually touch them. They're things that are physical, tangible, we can move them around typically. They're going to be used in the operations. So when we think about the tangible property, the same type of property could be either inventory or property, plant, and equipment depending on the use of that property. In other words, if we had something like a forklift and we used it for the business, that would be a form of property, plant, and equipment. However, if we're in the business of buying and selling forklifts, then it would be inventory. So we're talking about those types of tangible assets that are going to be used in the business for business operations, and they have a future benefit. So note that all assets basically have a future benefit. That's why we hold them. That's why they're assets. That's why they're not expenses. We have not yet consumed them in order to help generate revenue in this time period. We're holding them with the hope that they will help us generate revenue in the future. When considering property, plants, and equipment, we often have that question as to should we put something on the books when we purchase it as an asset or should we put it on the books as an expense? Most of us intuitively know that certain things should be assets such as buildings, such as equipment, and we'll take a look at those examples. However, we don't often know exactly why we intuitively know this, and the rule is because of this future benefit. If we're purchasing something and it has future benefit, then oftentimes it should be put on the books as an asset. If we buy a car, we're not consuming the car today for today's use. We might be using it a bit today, but it's going to be used a long time in the future and therefore should be capitalized on the books and then expensed over a time period. So these are going to be the components of the assets that we're talking about in terms of property, plant, and equipment. The life cycle of property, plant, and equipment typically will start with the acquisition with the purchase. So for example, if we're purchasing a building, we're going to have the acquisition first. Then we're going to allocate cost to the periods benefited. That's going to be the key point here. That's why we capitalize it because we're cannot allocate the cost at the point in time that it is purchased even if we pay cash for it because we're going to be consuming this property, plant, and equipment through future time periods and therefore under the matching principle must allocate the cost to those future time periods when it's consumed in order to help generate revenue. So of course our problem is going to be how to do that. We have different ways that we'll talk about how to best make that allocation and we'll need estimates in order to do that. At the end of the assets or the property, plants, and equipment's life, we will typically dispose of it at some time. Most property, plants, and equipment will not last forever and will have some point in time where we will need to dispose of it. And that's going to be the major three kind of journal entries that we'll need to be making when we buy property, plants, and equipment, which is pretty straightforward. We're just basically going to debit property, plants, and equipment and assets and credit whatever we pay for cash or a loan. The tricky part will of course be the allocation and we'll talk about different allocation methods and how to calculate allocation methods. And then we'll have the disposal which can be a little bit tricky as well because we will be introducing a new account and that's going to be a a contra asset account accumulated depreciation. We've probably seen it before but we haven't really calculated it and work with how that number comes about. The acquisition cost is going to be part of the property, plants, and equipment and that's pretty clear when we purchase property, plants, and equipment we know that the purchase price of it will be part of the cost. But it's also important to note that expenditures to prepare for use will also be needed. So if we're putting something in place, if we have to if we bought a refrigerator and we had to put the refrigerator in place and pay for that installation, then that installation, although it wasn't the sticker price, is part of what we need to get it up and running in in operations and therefore would be part of that property, plants, and equipment that we would capitalize not expense and then allocate over the useful life. So if we talk, there's a few different categories now of property, plants, and equipment. One is going to be machinery. So we're talking machinery and equipment and that of course when we buy something like a forklift it's going to acquire, we're going to have the acquisition cost, we're going to have those expenditures used expenditures to prepare for use of that forklift. So whatever we need to do to get the forklift up and running in addition to the acquisition costs, we're going to include obviously the price is going to be included in terms of what is capitalized. What we're adding up here is what is going to be capitalized as this forklift and you would think it would just be the sticker price, but all these things would be included the acquisition costs, the expenditures that the price would be related to it, the taxes if we had to have sales tax on the forklift that would be included. Any installation, obviously a forklift, if we had to transport it here probably installation wouldn't be here, but transport would possibly be here if we had to buy the forklift and then ship it then we wouldn't be able to just expense the shipping cost. And note that's really the difference here that we want to keep in mind. The question would be well what about the sales tax? Can we expense that or should we capitalize it? No we need to capitalize it because we're purchasing the forklift. What about the installation if we had to install anything to get the forklift up and running? Can we expense that or should we capitalize it? Well if it's for the initial purchase and we need to make the installation we should typically capitalize it as part of keeping the forklift up and running getting it ready for use. Transportation, should we expense that if we had to pay for the transportation in addition to the sticker price of the forklift or capitalize it along with the forklift? We should capitalize it typically because we needed the transportation in order to get the forklift up and running and for use in the operations. Transport insurance is another example if we had to pay for insurance during the transport process that should be capitalized rather than expense as well. Another category of property plans and equipment is building. So if we purchase a building we have similar types of things where the question is well what are we going to include in the cost of the building? Similar reasoning would be in place but we have a few different factors when considering the building. Obviously the purchase cost or construction would be in the building. So if we just bought the building then whatever the price would clearly be in it. If we construct the building then it can be a little bit confusing to think about because we the construction process could be a long process and we're basically capitalizing everything through that entire process of constructing the building as part of the cost of the building. Meaning we're not typically expensing anything during that construction process we're going to put it on the books as a capital asset. The title costs, taxes, broker fees for the purchase of the building, attorney fees for the purchase of the building. These are all going to be things that will be capitalized along with the building because they're needed to be done in order to get the building up and running. And again the question would be well can we expense these things or do we should we capitalize them? And it really depends on your angle as to whether what you would want to do as a business like what does the what does the business owner would they like to do? Notice that capitalizing typically makes the business look better because we're putting the asset on the books and we're not expensing it over time as quickly we're not just writing it off at this time period and therefore net income will typically be higher as well as assets. However for taxes we would typically want net income to be lower in order to write off more deductions and have lower net income and lower taxes. So depending on what your what your objective is the business may be asking either way and hoping either way that some of these things can be either expensed or capitalized as part of the building. So for example they might be hoping they can expense some of the of the taxes related to the building so that to lower their taxes their income taxes and the brokerage fee the question could be well can I write off the brokerage fee this year rather than capitalizing it and then expensing it. And those types of things can add up and we got to follow the rules here in terms of what should be allocated these are going to be part of the purchase and part of getting the building up and running and therefore should be part of the capitalization of the building not expense when paid. Then we're going to have land improvements now we've got land and then land improvements. Land is is is what it is it's just going to be the land that the building is going to be on and it's not something that's going to depreciate. Now things we put on the land that are going to be permanent structures like driveways fences shrubs lighting parking lots those are all going to be things that we're going to say are land improvements typically and so those are going to be the type of assets we have for land improvements. We're going to depreciate over the useful life of the improvements and that's going to be important because land doesn't typically go away but the improvements will so whatever we do to the land we're going to we're going to if it's a typically something that's kind of like be permanently attached to the land or installed in the land in some way that basically if you sold the land you would still have the structures on it most likely then those are going to be improvements and those will deteriorate over time and therefore need to be depreciated have need to have the cost allocated however the land itself once purchased you don't really depreciate that the cost is what it is and it's going to be there for good the land's not going to go away in a human lifetime hopefully. So then if we have land it's another category of property planting equipment what is included in the purchase of land obviously the purchase of price of land same principles that are in play here the title insurance so that would be part of the cost of the land the title insurance the surveying fees if there's any surveying fees that would be in cost of the land and be capitalized we've got the real estate commissions that would be a cost of the land and we've got the title search and transfer also going to be a cost of the land and improvements