What are Plant Assets and The Four Subdivisions? Land, Buildings Equipment, and Improvements are plant assets that usually have useful lives.
When structuring a balance sheet in a business it is best to categorize business dealings into assets and liabilities. In this breakdown, the most profitable assets that help improve operations and production as well as carry high value, in the long run, are considered Plant Assets. These assets contribute to the generation of revenue for the business and can bring large monetary value over time.
Plant assets are very valuable assets to a business and are categorized according to the industry of the business. The definition of plant assets, examples, and subdivisions are discussed in this article.
Definition of Plant Assets
Plant assets are fixed assets that facilitate the operations of a business and contribute the most to generating revenue for the business. These assets are long-term, tangible, and depreciate in value over time. Industrial companies such as Oil companies, food processing companies, and the likes, tend to have higher plant assets.
The name Plant Assets is derived from the Industrial Revolution, at that time the most prevalent mode of operations and production was in factories and plants. The emergence of Tech and the digital revolution has influenced several businesses, hence plant assets are no longer limited to plants and factories. Rather, different businesses recognize plant assets in terms of function and value to the nature of the business, this includes assets that can be used to produce income for your company.
Examples of plant assets are derived by assessing the useful life of the assets. Assets with useful life ranging above one year can be considered plant assets due to their long-term attribute. They are subject to depreciation, however, some are considered less likely to depreciation in value over time. Examples are vehicles, land, buildings, machinery and equipment, fixtures, and furniture.
Subdivisions of Plant Assets
Plant assets are considered an integral part of a business’s assets because of the long-term value it brings, however, a business plant assets’ value is inherently dependent on the size and industry of the business. There are many distinguished plant assets, and they are categorized to help a business perform proper account balancing.
The main subdivision of Plant Assets are:
For some businesses that require factories, plants, and warehouses, Land is a necessity, meanwhile, some businesses do not need to purchase land for function. In any case, the land is considered the most valuable asset for a business, because compared to the other subdivisions, it carries the most monetary value and longevity. The value of land usually appreciate over time, that is why some businesses invest inland.
The value of land for a business is considered the highest valuable asset, many businesses do not rely on land assets due to the nature of the business. For example, some technology companies do most of their work remotely thereby not incurring any land asset, meanwhile, businesses that require full house production like cement factories, obtain landed properties, which enhances the value of their assets.
The capacity to hold buildings for many businesses is a strategic means of recouping some of its revenue from the resale of the building. The value of a building is large, though it depreciates over time as a result of service, big companies invest in it due to its functions either for production, storage, or offices space, and an outlet store or place for customers to make transactions for small businesses that do not have a large staff base.
Building assets are prevalent in businesses that deal with product manufacturing, building materials, good storage, large tech companies, energy production, property development, etc. Buildings contribute largely to the assets of a business that foreign companies due to the value when concluding business in the host country. Large foreign oil companies tend to purchase high-quality buildings and equipment, which are later valued and resold to indigenous companies after a certain period of oil exploration.
This category of plant assets is vital and also commands high value due to its functions in contributing to efficient business operation. Equipment is diverse for different businesses, however, it is an important asset as it is the backbone of business operations and vital in moving production forward and revenue generation.
Assessing equipment in a business depends on the industry of the business and the functions of the equipment. A poultry farm business will consider its equipment in terms of defeathering machines, bird cages, drinkers, feeders, and egg-tray to be an integral part of efficient operation. While equipment for efficient operation in an oil refinery business will include pressure vessels, heater exchangers, pump and compressors, storage tank, etc. Equipment stands as a valuable asset, for one business in a particular industry, it is the means to customer satisfaction, whereas in another it is a tool to achieve business needs. Although plant assets are costly to maintain, it is important to concentrate on their functions instead of their worth.
In order for the assets of a business to be sustained properly, consistent improvement is necessary. Improvements elongate the lifespan of business assets and as for equipment, they last longer and efficiently when proper improvements and maintenance are done at the right time. Companies view improvements as assets due to the value it adds to the overall business performance, though it could be expensive.
Improvements are diverse for different businesses as it helps assess the quality of operations and reduces production constraint. Improvements in a coffee shop business could be to upgrade its coffee maker to a more technologically improved coffee maker, this would help cut the time it takes to brew a batch of coffee, thereby increasing the amount of coffee brewed and sold per day. This would be different for a Telecommunications company, rather they could consider improving their service deliverables and upgrading network cables to provide better services to customers.
Plant assets usually have useful lives, therefore making improvements such as innovations, maintenance, and the likes helps in sustaining the efficiency of the assets.