Plant vs Machinery
In day to day parlance, it is customary to refer to plant and machinery as a single entity and even accountants tend to take them as a grouping while reflecting them as fixed assets in a financial statement. Sometime an acronym called PP&E is used to refer to property, plant and machinery in a composite manner. These are fixed assets that can be distinguished with current assets such as cash, money in bank accounts etc. Current assets are liquid in nature whereas plant and machinery is not as liquid in nature as it cannot be taken to the market to be sold as such. To speak of plant and machinery in the same breath has become common but it is not correct. This article will attempt to find out the differences between these two terms.
In a factory, fixed assets are the machinery and the equipment. Land and property, car, computer and office equipment, plant and machinery are all fixed assets in any business. The primary objective of any business entity is to earn profits for the owner of the business. Such fixed assets are normally used for a period of one year. It becomes essential in accountancy to determine the net income or profit by charging depreciation on the value of the asset. Net book value is the difference between the original purchase price of the asset and its present value. Present value is always lower than original price of the asset because of the wear and tear and usage.
It is worthwhile to note that not all fixed assets depreciate over time and some, such as land and plant, may actually increase in value while machinery which is taken as goods always loses its value over time. This is one instant when plant can be distinguished from machinery. Interestingly, fixed assets are sometimes collectively referred to as plant only whereas they include both plant and machinery.
Another point of distinction is that while machinery is taken as equipment that can be readily taken out of the factory, plant includes immovable property or property that has been attached to the earth.
|
In brief: • While for all practical purposes including accountancy, plant and machinery that form a big part of fixed assets are lumped together, there are differences in between the two terms. • Plant is taken as immovable property or property that has been attached to the earth whereas machinery is machines that can be taken out of the factory on a short notice.
|
Leave a Reply