Your Practical Playbook For Reporting PPE
On our quest to empower businesses to navigate financial reporting with clarity, especially when it comes to property, plant, and equipment (PPE), we’re breaking down the essentials of PPE reporting to ensure accuracy and support your growth. Keep reading for tips to help you get it right.
Capitalize Costs For Property, Plant, & Equipment
Under U.S. GAAP, property, plant, and equipment assets are capitalized on your balance sheet at historical cost, then depreciated over time. Include all direct costs to prepare PPE for use, such as:
- Purchase price
- Sales tax
- Shipping fees
- Installation expenses
Enhancements to PPE should also be capitalized, while repairs can be expensed. Set a capitalization threshold to expense smaller assets, ensuring your financials remain accurate.
Estimate The Useful Life Of PPE
Determining the useful life of property, plant, and equipment is key to your depreciation schedule. Consider factors like:
- Expected usage
- Legal or contractual limits
- Past experience with similar PPE
- Economic obsolescence
An accurate estimate ensures your depreciation aligns with PPE contributions to operations. If PPE is sold or impaired, remove it from the balance sheet and record any gain or loss. It’s important to get this estimate right as it will affect your depreciation schedule and, therefore, your company’s reported profits.
Choose The Right Depreciation Method For PPE
Depreciation spreads property, plant, and equipment costs over their useful life. GAAP offers methods such as:
- Straight-line
- Declining-balance
- Units-of-production
- Sum-of-the-years-digits
Some businesses align with tax methods like the standard Modified Accelerated Cost Recovery System (MACRS) depreciation method or Section 179 for simplicity, but this can skew book value versus market value, impacting reported profits. Be mindful of how accelerated depreciation affects financial comparisons and stakeholder perceptions.
Partner With GBQ For PPE Reporting Expertise
Reporting property, plant, and equipment involves judgment that can impact your financials and tax strategy. GBQ’s assurance expertise ensures compliance with GAAP will help align your PPE approach with goals and build stakeholder trust. Contact us to simplify your reporting journey.
Seeking out more assurance and audit tips? Check out these resources:
From Fair Value To Carryover: ASU 2021-08 For Private Companies
Triumph In M&A: Dodge These 7 Due Diligence Pitfalls With Precision
Mastering Business Combinations: Key Tips For Franchisor Success
