What are they and how do you manage them?

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Do you know what a plant active ingredient is? Are they managed like other assets? Find out what Factory Assets are, if you currently own Factory Assets, and how to distinguish Factory Assets from other assets.

Assets are anything of value that your business owns. Even the smallest business has assets, which can include everything from money in the bank, to the computer you work on, to the building where you make piggy banks. If it has value, it is considered an asset.

A business may have a variety of assets, including:

  • Current assets
  • Investments (long term)
  • fixed assets
  • Intangible assets

Industrial assets, also known as fixed assets, are any asset directly involved in generating revenue that has a useful life of more than one year. Named during the industrial revolution, factory assets are no longer limited to factory or manufacturing equipment but also include any asset used in the generation of revenue.

The best way to manage your assets is to use accounting software that simplifies the entire asset management process, from initial acquisition to disposal of assets.

Overview: What is a factory asset?

Plant assets are long-lived assets directly used in revenue generation. Plant assets always have a useful life of more than one year and are generally used daily in revenue generation. There are five major categories of industrial assets, with most industrial assets falling into a single category:

  • Office supplies
  • Plant equipment and machinery
  • Buildings
  • Earth
  • Improvements

Diagram with plant asset types

There are five major categories of plant actives that you can use in your business. Image source: author

Since generating assets have a useful life of more than one year, their expense is not recognized when purchased, but must be depreciated over the useful life of the asset, keeping the purchase in accordance with the matching principle which stipulates that expenses should be recorded when they can correspond to the income generated.

The only exception is land, which has no finite life and therefore cannot be depreciated.

When depreciating plant assets, use the total cost of plant assets when calculating depreciation. To depreciate machinery and equipment, you can use the following depreciation methods:

  • Linear method: Straight-line depreciation is the simplest depreciation method, with the same depreciation expense recorded each year. For example, if you buy a piece of equipment for $15,000, with a useful life of three years, your depreciation expense would be $5,000 per year, not including the cost of salvage.
  • Double declining balance method: Ideally used for vehicles and other items that lose value faster in the first few years of use, double-declining balance is an accelerated method of depreciation that depreciates the value of the asset at twice the straight-line method. . Unlike straight-line depreciation, the double-declining depreciation expense changes from year to year, with the first two years being the highest and the depreciation expense decreasing in subsequent years.
  • Production method units: The unit-of-production method of depreciation can be used for equipment whose useful life is based on production levels rather than years of use. You can depreciate equipment based on hours of use or production based on the machine and its usage.

With respect to buildings, under IRS rules, non-residential buildings can be depreciated over 39 years using the Modified Accelerated Cost Recovery System (MACRS) depreciation method.

Plant assets, like all assets, are reported on your balance sheet, where they are usually displayed separately from current assets and are usually listed as fixed assets, long-lived assets, or real estate and physical assets (fixed assets bodily).

Example of a balance sheet with fixed assets, plants and equipment.

Fixed assets are classified separately in a balance sheet. Image source: author

Common Examples of Factory Assets

Using the five main plant asset categories, here are examples of plant assets:

  • Machinery: Press brakes, beveling machines and band saws are examples of machines.
  • Equipment: Die casting machines, production machines, foundry equipment and edgebanders are examples of equipment.
  • Construction: The construction of buildings is considered an asset of the factory.
  • Renovations: An addition to an existing facility or renovation of a building would be considered a plant asset.
  • Office supplies: Desktops, laptops, copiers and printers are all plant assets.
  • Vehicles: Delivery vehicles and trucks for transporting equipment would be considered a plant asset.
  • Furniture and lighting: Furniture such as desks, workstations, tables, chairs, and light fixtures are all factory assets.
  • Facilities: the building that houses your business or your manufacturing plant are assets of the plant.
  • Earth: Any land your business owns is considered a factory asset. Remember that land is the only plant asset that should not be depreciated.
  • Grounds maintenance: Land improvements are also considered a factory asset and are sometimes considered depreciable if the improvement has a useful life, such as erecting a fence.

What are the common characteristics of plant active ingredients?

Some major characteristics common to all plant assets:

  • They are used directly in operations or revenue generation.
  • They have a lifespan of over a year.
  • They are tangible, which means they have a physical presence.
  • They are generally, with the exception of land, subject to depreciation.

FAQs

  • Current assets such as cash, cash equivalents, accounts receivable and inventory are considered current assets, meaning they can be converted into cash in less than a year.

    Industrial assets, like all fixed assets, are considered long-term assets with a useful life of more than one year. Additionally, plant assets are actively used in revenue generation and are considered necessary for a business to make a profit.

  • Most plant assets such as machinery, equipment and buildings are subject to depreciation as they have a limited useful life. Land does not have a finite useful life and is therefore never subject to depreciation, although various land improvements such as adding fences may be depreciable.

  • Yes. Since the generating assets all have a useful life of more than one year, they would be considered long-lived assets.

  • If the computer is needed to provide goods and services to customers, it would be considered a factory asset, since it has a useful life of more than one year.

Some Final Thoughts on Plant Assets

Plant assets are the heart of your business. It is impossible to manufacture products without equipment and machinery, or a building to house them. If the equipment or machinery in question is a necessary item in the operation of your business, it is a plant asset. Make sure you manage them well.