What is Property, Plant, and Equipment and Its Classification as a Current Asset

Property, Plant, and Equipment (PP&E) refers to the long-term, tangible assets that are used in the regular operations of a business. These assets may include land, buildings, machinery, equipment, vehicles, and furniture. PP&E can be classified as a current or non-current asset based on its usability and conversion into cash. In this article, we will focus on the classification of PP&E as a current asset.

Current Assets Classification

Current assets are those that are expected to be converted into cash or used within a year from the balance sheet date. Examples of current assets include cash, accounts receivable, inventory, prepaid expenses, and short-term investments. The classification of PP&E as a current asset depends on its expected usage and ability to be converted into cash within a year.

Classifying PP&E as a Current Asset

PP&E can be classified as a current asset if it meets any of the following criteria:

1. Held for Sale

PP&E held for sale can be classified as a current asset. If the company decides to sell a particular asset or a group of assets that are no longer used in its regular operations, they are classified as held for sale. The asset is expected to be sold within one year, and the proceeds from the sale will be used to pay off current liabilities. Such PP&E is shown separately in the balance sheet with clear disclosures about its classification.

2. Idle PP&E

PP&E that is temporarily idle, but is expected to be utilized in the near future can be classified as a current asset. For example, if a machine is being repaired, it may be temporarily idle, but intended to be back in use within a year. Such idle PP&E can be shown under current assets in the balance sheet.

3. PP&E Held for Replacement

PP&E held for replacement can also be classified as a current asset. When a company has a group of assets that are old or outdated, but still being used in its regular operations, it may hold PP&E for replacement. Such PP&E is expected to be replaced within a year, and they can be classified as a current asset in the balance sheet.

Conclusion

PP&E is a long-term, tangible asset that is essential for the regular operations of a business. It can be classified as a current or non-current asset based on its expected usage and conversion into cash. In this article, we have discussed the criteria for classifying PP&E as a current asset, including assets held for sale, idle PP&E, and PP&E held for replacement. By understanding the classification of PP&E, investors and stakeholders can interpret financial statements accurately.