{"id":251,"date":"2024-09-06T16:47:56","date_gmt":"2024-09-06T16:47:56","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/putting-it-together-property-plant-and-equipment\/"},"modified":"2024-09-06T16:47:56","modified_gmt":"2024-09-06T16:47:56","slug":"putting-it-together-property-plant-and-equipment","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/putting-it-together-property-plant-and-equipment\/","title":{"raw":"Putting It Together: Property, Plant, and Equipment","rendered":"Putting It Together: Property, Plant, and Equipment"},"content":{"raw":"\nLet\u2019s take a final look at the assets section of the balance sheet for Facebook, Inc., focusing on PP&E. Notice the title of that line specifically states, \u201cProperty and equipment, net,\u201d which means that the $35.323 billion dollars in PP&E is stated net of accumulated depreciation, meaning it is the book value of those assets.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
FACEBOOK INC.\nCONSOLIDATED BALANCE SHEET\n(in millions, except for number of shares and par value)<\/caption>\n
Description<\/span><\/th>\nDecember 31,<\/th>\n<\/tr>\n
Description<\/span><\/th>\n2019<\/th>\n2018<\/th>\n<\/tr>\n<\/thead>\n
Category, <\/span>Assets<\/strong><\/td>\n<\/tr>\n
Subcategory, <\/span>Current Assets:<\/td>\n<\/tr>\n
     Cash and cash equivalents<\/td>\n$     19,079<\/td>\n$     10,019<\/td>\n<\/tr>\n
     Marketable securities<\/td>\n35,776<\/td>\n31,095<\/td>\n<\/tr>\n
     Accounts receivable, net of allowances of $206 and $229 as of December 31, 2019 and December 31, 2018, respectively<\/td>\n9,518<\/td>\n7,587<\/td>\n<\/tr>\n     Prepaid expenses and other current assets<\/td>\n1,852<\/td>\n1,779<\/td>\n\n
          Total current assets<\/td>\nSingle line<\/span>\n66,225<\/td>\nSingle line<\/span>\n50,480<\/td>\n<\/tr>\n
Property and equipment, net<\/td>\n35,323<\/td>\n24,683<\/td>\n<\/tr>\n
Operating lease right-of-use assets, net<\/td>\n9,460<\/td>\n---<\/td>\n<\/tr>\n
Intangible assets, net<\/td>\n894<\/td>\n1,294<\/td>\n<\/tr>\n
Goodwill<\/td>\n18,715<\/td>\n18,301<\/td>\n<\/tr>\n
Other Assets<\/td>\n2,759<\/td>\n2,576<\/td>\n<\/tr>\n
Total assets<\/strong><\/td>\nSingle line<\/span>\n$     133,376\nDouble line<\/span><\/td>\nSingle line<\/span>\n$     97,334\nDouble line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n \n\nLet\u2019s also look at Note 6 again. In 2019, accumulated depreciation is almost $11 billion, up from $7 billion in 2018.\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Note 6.       Property and Equipment<\/th>\n<\/tr>\n
      Property and equipment, net consists of the following (in millions):<\/strong><\/th>\n<\/tr>\n
Description<\/span><\/th>\nColumn added for spacing<\/span><\/th>\nColumn added for spacing<\/span><\/th>\nDecember 31,<\/th>\n<\/tr>\n
Description<\/span><\/th>\nColumn added for spacing<\/span><\/th>\nColumn added for spacing<\/span><\/th>\n2019<\/th>\n2018<\/th>\n<\/tr>\n<\/thead>\n
Land<\/td>\n<\/td>\n<\/td>\n$     1,097<\/td>\n$     899<\/td>\n<\/tr>\n
Buildings<\/td>\n<\/td>\n<\/td>\n11,226<\/td>\n7,401<\/td>\n<\/tr>\n
Leasehold improvements<\/td>\n<\/td>\n<\/td>\n3,112<\/td>\n1,841<\/td>\n<\/tr>\n
Network equipment<\/td>\n<\/td>\n<\/td>\n17,004<\/td>\n13,017<\/td>\n<\/tr>\n
Computer software, office equipment and other<\/td>\n<\/td>\n<\/td>\n1,813<\/td>\n1,187<\/td>\n<\/tr>\n
Finance lease right-of-use assets<\/td>\n<\/td>\n<\/td>\n1,635<\/td>\n---<\/td>\n<\/tr>\n
Construction in progress <\/td>\n<\/td>\n<\/td>\n10,099<\/td>\n7,228<\/td>\n<\/tr>\n
      Total<\/td>\n<\/td>\n<\/td>\nSingle line<\/span>\n45,986<\/td>\nSingle line<\/span>\n31,573<\/td>\n<\/tr>\n
Less: Accumulated depreciation<\/td>\n<\/td>\n<\/td>\n(10,663)<\/td>\n(6,890)<\/td>\n<\/tr>\n
Property and equipment, net<\/strong><\/td>\n<\/td>\n<\/td>\nSingle line<\/span>\n$     35,323\nDouble line<\/span><\/td>\nSingle line<\/span>\n$     24,683\nDouble line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n \n\nThe rest of the text of Note 6 states:\n
Depreciation expense on property and equipment were $5.18 billion, $3.68 billion, and $2.33 billion for the years ended December 31 of 2019, 2018, and 2017, respectively. The majority of the PP&E depreciation expense was from network equipment depreciation of $3.83 billion, $2.94 billion, and $1.84 billion for the years ended December 31 of 2019, 2018, and 2017, respectively. Construction in progress includes costs mostly related to construction of data centers, network equipment infrastructure (to support our data centers around the world), and office buildings. No interest was capitalized for any period presented.<\/blockquote>\nIn addition, on pages 82\u201383 in Note 1, entitled Summary of Significant Accounting Policies, that starts on page 79, the company discloses its general policies around reporting fixed assets and calculating depreciation. Most of these general policies you should recognize by now:\n
PP&E, which includes amounts recorded under finance leases, are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the remaining lease term, whichever is shorter.\n\nThe estimated useful lives of property and equipment are described below:\n
\n\n\n\n\n\n\n\n\n
Property and Equipment<\/th>\nUseful Life<\/th>\n<\/tr>\n
Network equipment<\/td>\n3\u2013 20 years<\/td>\n<\/tr>\n
Buildings<\/td>\n3\u201330 years<\/td>\n<\/tr>\n
Computer software, office equipment and other<\/td>\n2\u20135 years<\/td>\n<\/tr>\n
Finance lease right-of-use assets<\/td>\n3\u201320 years<\/td>\n<\/tr>\n
Leasehold improvements<\/td>\nLesser of estimated useful life or remaining lease term<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\nThe useful lives of our property and equipment are determined by management when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. Our current estimate of useful lives represents the best estimate of the useful lives based on current facts and circumstances but may differ from the actual useful lives due to changes in future circumstances, such as changes to our business operations, changes in the planned use of assets, and technological advancements. When we change the estimated useful life assumption for any asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated or amortized over the revised estimated useful life. Historically, changes in useful lives have not resulted in material changes to our depreciation and amortization expense.\n\nLand and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of PP&E that have not yet been placed in service for their intended use.\n\nThe cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income from operations.<\/blockquote>\nYou may be surprised now by how much of these financial statement disclosures you understand. You know property and equipment net means book value. You recognize the different subcategories of PP&E listed in Note 6, and you know accumulated depreciation is all the prior depreciation expense taken minus any accumulated depreciation that was attached to assets sold. You know how straight-line depreciation expense is calculated (Facebook, Inc. likely uses accelerated depreciation for tax purposes, which is allowed under both tax law and GAAP). You understand the concept of useful life and of capitalization.\n\nYou may have caught the line where the company says, \u201cConstruction in progress includes costs mostly related to construction of data centers, network equipment infrastructure to support our data centers around the world, and office buildings. No interest was capitalized for any period presented.\u201d That statement probably means the company did not borrow any money for the construction in progress. If it had, it would be capitalizing interest as part of construction. In the second to the last paragraph of the accounting policies statement, you may have noticed the company addressing both concepts of estimates and materiality, and in the last paragraph you saw the company address both repairs and maintenance (expensed as period expenses) and  gains and losses on retirement of assets.\n\nNow, with your new knowledge about the ways PP&E is addressed and assessed, you will be able to read a company\u2019s financial statements with a greater depth of understanding.\n","rendered":"

Let\u2019s take a final look at the assets section of the balance sheet for Facebook, Inc., focusing on PP&E. Notice the title of that line specifically states, \u201cProperty and equipment, net,\u201d which means that the $35.323 billion dollars in PP&E is stated net of accumulated depreciation, meaning it is the book value of those assets.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
FACEBOOK INC.
\nCONSOLIDATED BALANCE SHEET
\n(in millions, except for number of shares and par value)<\/caption>\n
Description<\/span><\/th>\nDecember 31,<\/th>\n<\/tr>\n
Description<\/span><\/th>\n2019<\/th>\n2018<\/th>\n<\/tr>\n<\/thead>\n
Category, <\/span>Assets<\/strong><\/td>\n<\/tr>\n
Subcategory, <\/span>Current Assets:<\/td>\n<\/tr>\n
     Cash and cash equivalents<\/td>\n$     19,079<\/td>\n$     10,019<\/td>\n<\/tr>\n
     Marketable securities<\/td>\n35,776<\/td>\n31,095<\/td>\n<\/tr>\n
     Accounts receivable, net of allowances of $206 and $229 as of December 31, 2019 and December 31, 2018, respectively<\/td>\n9,518<\/td>\n7,587<\/td>\n<\/tr>\n<\/tbody>\n
          Total current assets<\/td>\nSingle line<\/span>
\n66,225<\/td>\n		Single line<\/span>
\n50,480<\/td>\n<\/tr>\n
Property and equipment, net<\/td>\n35,323<\/td>\n24,683<\/td>\n<\/tr>\n
Operating lease right-of-use assets, net<\/td>\n9,460<\/td>\n—<\/td>\n<\/tr>\n
Intangible assets, net<\/td>\n894<\/td>\n1,294<\/td>\n<\/tr>\n
Goodwill<\/td>\n18,715<\/td>\n18,301<\/td>\n<\/tr>\n
Other Assets<\/td>\n2,759<\/td>\n2,576<\/td>\n<\/tr>\n
Total assets<\/strong><\/td>\nSingle line<\/span>
\n$     133,376
\nDouble line<\/span><\/td>\n		Single line<\/span>
\n$     97,334
\nDouble line<\/span><\/td>\n<\/tr>\n<\/table>\n

 <\/p>\n

Let\u2019s also look at Note 6 again. In 2019, accumulated depreciation is almost $11 billion, up from $7 billion in 2018.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Note 6.       Property and Equipment<\/th>\n<\/tr>\n
      Property and equipment, net consists of the following (in millions):<\/strong><\/th>\n<\/tr>\n
Description<\/span><\/th>\nColumn added for spacing<\/span><\/th>\nColumn added for spacing<\/span><\/th>\nDecember 31,<\/th>\n<\/tr>\n
Description<\/span><\/th>\nColumn added for spacing<\/span><\/th>\nColumn added for spacing<\/span><\/th>\n2019<\/th>\n2018<\/th>\n<\/tr>\n<\/thead>\n
Land<\/td>\n<\/td>\n<\/td>\n$     1,097<\/td>\n$     899<\/td>\n<\/tr>\n
Buildings<\/td>\n<\/td>\n<\/td>\n11,226<\/td>\n7,401<\/td>\n<\/tr>\n
Leasehold improvements<\/td>\n<\/td>\n<\/td>\n3,112<\/td>\n1,841<\/td>\n<\/tr>\n
Network equipment<\/td>\n<\/td>\n<\/td>\n17,004<\/td>\n13,017<\/td>\n<\/tr>\n
Computer software, office equipment and other<\/td>\n<\/td>\n<\/td>\n1,813<\/td>\n1,187<\/td>\n<\/tr>\n
Finance lease right-of-use assets<\/td>\n<\/td>\n<\/td>\n1,635<\/td>\n—<\/td>\n<\/tr>\n
Construction in progress <\/td>\n<\/td>\n<\/td>\n10,099<\/td>\n7,228<\/td>\n<\/tr>\n
      Total<\/td>\n<\/td>\n<\/td>\nSingle line<\/span>
\n45,986<\/td>\n		Single line<\/span>
\n31,573<\/td>\n<\/tr>\n
Less: Accumulated depreciation<\/td>\n<\/td>\n<\/td>\n(10,663)<\/td>\n(6,890)<\/td>\n<\/tr>\n
Property and equipment, net<\/strong><\/td>\n<\/td>\n<\/td>\nSingle line<\/span>
\n$     35,323
\nDouble line<\/span><\/td>\n		Single line<\/span>
\n$     24,683
\nDouble line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n

The rest of the text of Note 6 states:<\/p>\n

Depreciation expense on property and equipment were $5.18 billion, $3.68 billion, and $2.33 billion for the years ended December 31 of 2019, 2018, and 2017, respectively. The majority of the PP&E depreciation expense was from network equipment depreciation of $3.83 billion, $2.94 billion, and $1.84 billion for the years ended December 31 of 2019, 2018, and 2017, respectively. Construction in progress includes costs mostly related to construction of data centers, network equipment infrastructure (to support our data centers around the world), and office buildings. No interest was capitalized for any period presented.<\/p><\/blockquote>\n

In addition, on pages 82\u201383 in Note 1, entitled Summary of Significant Accounting Policies, that starts on page 79, the company discloses its general policies around reporting fixed assets and calculating depreciation. Most of these general policies you should recognize by now:<\/p>\n

PP&E, which includes amounts recorded under finance leases, are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the remaining lease term, whichever is shorter.<\/p>\n

The estimated useful lives of property and equipment are described below:<\/p>\n

\n\n\n\n\n\n\n\n\n
Property and Equipment<\/th>\nUseful Life<\/th>\n<\/tr>\n
Network equipment<\/td>\n3\u2013 20 years<\/td>\n<\/tr>\n
Buildings<\/td>\n3\u201330 years<\/td>\n<\/tr>\n
Computer software, office equipment and other<\/td>\n2\u20135 years<\/td>\n<\/tr>\n
Finance lease right-of-use assets<\/td>\n3\u201320 years<\/td>\n<\/tr>\n
Leasehold improvements<\/td>\nLesser of estimated useful life or remaining lease term<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

The useful lives of our property and equipment are determined by management when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. Our current estimate of useful lives represents the best estimate of the useful lives based on current facts and circumstances but may differ from the actual useful lives due to changes in future circumstances, such as changes to our business operations, changes in the planned use of assets, and technological advancements. When we change the estimated useful life assumption for any asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated or amortized over the revised estimated useful life. Historically, changes in useful lives have not resulted in material changes to our depreciation and amortization expense.<\/p>\n

Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of PP&E that have not yet been placed in service for their intended use.<\/p>\n

The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income from operations.<\/p><\/blockquote>\n

You may be surprised now by how much of these financial statement disclosures you understand. You know property and equipment net means book value. You recognize the different subcategories of PP&E listed in Note 6, and you know accumulated depreciation is all the prior depreciation expense taken minus any accumulated depreciation that was attached to assets sold. You know how straight-line depreciation expense is calculated (Facebook, Inc. likely uses accelerated depreciation for tax purposes, which is allowed under both tax law and GAAP). You understand the concept of useful life and of capitalization.<\/p>\n

You may have caught the line where the company says, \u201cConstruction in progress includes costs mostly related to construction of data centers, network equipment infrastructure to support our data centers around the world, and office buildings. No interest was capitalized for any period presented.\u201d That statement probably means the company did not borrow any money for the construction in progress. If it had, it would be capitalizing interest as part of construction. In the second to the last paragraph of the accounting policies statement, you may have noticed the company addressing both concepts of estimates and materiality, and in the last paragraph you saw the company address both repairs and maintenance (expensed as period expenses) and  gains and losses on retirement of assets.<\/p>\n

Now, with your new knowledge about the ways PP&E is addressed and assessed, you will be able to read a company\u2019s financial statements with a greater depth of understanding.<\/p>\n","protected":false},"author":6,"menu_order":22,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Putting it Together: Property, Plant, and Equipment\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":229,"module-header":"","content_attributions":[{"type":"original","description":"Putting it Together: Property, Plant, and Equipment","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/251"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":0,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/251\/revisions"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/229"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/251\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=251"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=251"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=251"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=251"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}