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Evaluation of the Accounting for Property, Plant, and Equipment (PPE)
GAAP requires the use of depreciated historical cost. As previously mentioned, this valuation does not reflect current market value. Accordingly, care must be taken when using this information. Lending institutions, for example, sometimes require loan applicants to pledge assets as collateral. In evaluating the adequacy of the pledged assets, historical cost is not particularly relevant; the loan officer is more interested in current market value.
Figure 6.5 - Australian Firms Write Up Fixed Assets
Although the financial statements of U.S. companies do not disclose the market value of fixed assets, a few countries do permit the use of market value. Exhibit 6.5 contains a note from the annual report of an Australian company. The note shows that Monroe revalued its land, building, and improvements in 2001. In this particular case, market value significantly exceeds historical cost. Because such differences can dramatically affect a number of ratios, care must be taken when comparing the financial statements of firms from different countries.
Property, Plant, and Equipment (PPE) Topics
- Property, Plant and Equipment (PPE)
- Initial Valuation of Property, plant, and equipment (PPE)
- Depreciation of Property, plant, and equipment (PPE)
- Expenditures After Acquisition - Property, plant, and equipment (PPE)
- Disposals of Property, plant, and equipment (PPE)
- Write-Downs - Property, plant, and equipment (PPE)
- Financial Statement Presentation of Property, plant, and equipment (PPE)
- Utilization of Property, plant, and equipment (PPE)
- Percentage of PPE Depreciated (Age)
- Evaluation of the Accounting for Property, Plant, and Equipment (PPE)
Related Noncurrent Assets Topics
