 In this discussion we will discuss the discussion question of define property plant and equipment and how to account for them. So if we see an essay question like this of course the best place to start is the definition what are we talking about when we're talking about property plant and equipment. We're typically talking about tangible type of assets, assets that we can physically touch, physically move and feel, assets that have a useful life typically more than one year or accounting period and therefore assets that we will be allocating or depreciating or allocating the cost of those property plants and equipment to the income statement over the useful life. Couple issues when we determine property plants and equipment what are we going to do with it? How are we going to record property plants and equipment? One is that when we purchase it we need to determine should we record it as property plant and equipment and again if it's if it's tangible assets that's something that we're going to use more than one time period or we're going to use it multiple time periods into the future multiple years into the future then typically it's something that we would need to capitalize as property plants and equipment. When we put it on the books then we have the problem of how do we record it and we would typically record it using the cost principle at cost what we paid for it. Now that doesn't mean that we had to pay cash for it if we took a loan out then we would still put it on the books for the loan amount whatever the sticker price was because we bought it in essence by financing it in that case so we'll put it on the books at the cost then we have the the next problem which is that we put it on the books as an asset we debit the asset credit the cash that we paid or any kind of liability that we paid for it now it's not going to stay on the books for an asset forever because we know that this type of asset will depreciate over time it'll go down in value either through deterioration or just you know normal normal deterioration maintenance and stuff like that that it will decline in value and therefore what we want to do is allocate the cost over its useful life not the market value we're not trying to get it to the market value per se what we're trying to do is allocate the cost over its useful life which may mirror in some ways the market value of the equipment as it goes down but it's a it's a key distinction here that we're using a cost principle and recording the cost allocating it over the useful life not trying to record necessarily the fair market value as the equipment so the way we're going to do that will be through depreciation a couple different methods we can use a straight line method is kind of the standard default to explain depreciation and then we have some variations on that including some accelerated methods like double declining balance or a units of production method which can also be used to calculate the depreciation now the goal of these are going to be to allocate the expense for the cost over the useful life we do that with the journal entry of debiting depreciation expense and crediting accumulated depreciation you'll note that within that we don't have the term property plants and equipment we have depreciation and accumulated depreciation we're going to make up another account in other words that will be reducing the equipment it's called a contra asset account that's going to be the accumulated depreciation so therefore to to allocate the the cost and then to calculate the book value we would have to take the equipment minus the accumulated depreciation and that would then give us the book value so we're going to do that over the useful life and at the end of the useful life we will then have the salvage value being the remaining value now in order to calculate the straight line method or double declining method we would typically need the cost of the equipment what we believe the salvage value would be at the end of the useful life of the equipment and the useful life of the equipment those are going to be some factors needed in order to calculate the depreciation another component we need to calculate in depreciation is at the end of the useful life or if we sell it then we have to record the disposal whatever that disposal may be in some way and to do that we've got to take off not only the equipment account off the books once we get rid of it but also the accumulated depreciation related to it so it's an asset type of account so when we get rid of it we'd have to debit the we'd have to credit the asset the equipment asset to make it go down we'd have to debit the related accumulated depreciation to make it go down and then the difference there if there is any difference would possibly go to a gain or loss now if we had sold it for something then we'd have to say okay we got cash we debit cash we credit the equipment to make it go off we debit the accumulated depreciation to make it get off the books and then any difference there to make the journal entry balance would be a gain or loss on the sale of the equipment so those are going to be our major components when we deal with property planting equipment it goes on as an asset we got to record the assets and then we got to record the depreciation over its useful life then we have to record the either sale or disposal of the property planting equipment at some point