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36
The Corporate Finance Institute
Accounting
PPE Accounting 
Background
Property, Plant, and Equipment, also referred to as PPE, are tangible 
items that are:
a.
Held for use in the production or supply of goods or services; and
b.
Are expected to be used during more than one accounting period
First and foremost, PPE is classified as a tangible asset. Assets can be 
separated into two kinds: tangible and intangible.
The accounting treatment for tangible and intangible assets is very 
different. Here we focus on the accounting for tangible assets, mainly PPE. 
Tangible
Intangible
Possesses a physical presence 
Does not have physical presence
Examples:
•
Land
•
Building
•
Equipment
•
Production facility
Examples:
•
Copyright
•
Patents
•
License
•
Trademark
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corporatefinanceinstitute.com
37
The Corporate Finance Institute
Accounting
Recognition and Measurement
PPE should be recognized by a company only if:
a.
It is probable that future economic benefits associated with asset will
flow to the entity; and
b.
The cost of the asset can be measured reliably.
The initial costs of a PPE item may include:
a.
Its purchase price, any import duties, non-refundable taxes, sales
discounts, and rebates;
b.
Any costs directly attributable to bringing the asset to the location
and condition necessary for it to operational; and
c.
An estimated value of the costs of dismantling and removing the
asset and restoring the site on which it is located. This is commonly
referred to as an asset retirement obligation (ARO).
The following table illustrates some costs that must be included in the 
capitalization of PPE: