.Analysis of Property, Plant and Equipment
Difficulty: Advanced
Property, Plant and Equipment Accounting Policy
Property, plant and equipment is stated at cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Estimated useful lives for financial reporting purposes are as follows: buildings and improvements, 3 to 30 years; demonstration and manufacturing equipment, 3 to 5 years; software, 3 to 5 years; and furniture, fixtures and other equipment, 3 to 15 years. Land improvements are amortized over the shorter of 15 years or the estimated useful life. Leasehold improvements are amortized over the shorter of five years or the lease term.
Source: Applied Materials Inc., Annual Report
Property, Plant and Equipment Disclosure
Applied Materials Inc., Statement of Financial Position, Property, Plant and Equipment
USD $ in millions
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Land and improvements | ||||||
| | Buildings and improvements | ||||||
| | Demonstration and manufacturing equipment | ||||||
| | Furniture, fixtures and other equipment | ||||||
| | Construction in progress | ||||||
| | Gross property, plant and equipment | ||||||
| | Accumulated depreciation | ||||||
| | Property, plant and equipment, net |
Source: Based on data from Applied Materials Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Land and improvements | Real estate assets held for productive use and depreciable assets that are an addition or improvement to real estate held for productive use. | Applied Materials Inc.'s land and improvements increased from 2015 to 2016 and from 2016 to 2017. |
| Buildings and improvements | Carrying amount as of the balance sheet date of long-lived, depreciable assets that include building structures held for productive use including any addition, improvement, or renovation to the structure, such as interior masonry, interior flooring, electrical, and plumbing. | Applied Materials Inc.'s buildings and improvements increased from 2015 to 2016 and from 2016 to 2017. |
| Furniture, fixtures and other equipment | Carrying amount at the balance sheet date for long-lived, depreciable asset commonly used in offices and stores. Examples include desks, chairs, and store fixtures. | Applied Materials Inc.'s furniture, fixtures and other equipment declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
| Construction in progress | Carrying amount at the balance sheet date of long-lived asset under construction that include construction costs to date on capital projects that have not been completed and assets being constructed that are not ready to be placed into service. | Applied Materials Inc.'s construction in progress increased from 2015 to 2016 and from 2016 to 2017. |
| Gross property, plant and equipment | Carrying amount at the balance sheet date for long-lived physical assets used in the normal conduct of business and not intended for resale. This can include land, physical structures, machinery, vehicles, furniture, computer equipment, construction in progress, and similar items. Amount does not include depreciation. | Applied Materials Inc.'s gross property, plant and equipment increased from 2015 to 2016 and from 2016 to 2017. |
| Property, plant and equipment, net | Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. | Applied Materials Inc.'s property, plant and equipment, net increased from 2015 to 2016 and from 2016 to 2017. |
Property, Plant and Equipment Ratios (Summary)
Applied Materials Inc., Property, Plant and Equipment Ratios
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Average age | % | % | % | % | % | % |
| | Estimated total useful life (years) | ||||||
| | Estimated age, time elapsed since purchase (years) | ||||||
| | Estimated remaining life (years) |
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. | Applied Materials Inc.'s average age of depreciable property, plant and equipment improved from 2015 to 2016 and from 2016 to 2017. |
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. | Applied Materials Inc.'s estimated total useful life of depreciable property, plant and equipment declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | Applied Materials Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2015 to 2016 and from 2016 to 2017. |
| Estimated remaining life | Applied Materials Inc.'s estimated remaining life of depreciable property, plant and equipment declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Average Age
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Accumulated depreciation | ||||||
| | Gross property, plant and equipment | ||||||
| | Land and improvements | ||||||
| Ratio | |||||||
| | Average age1 | % | % | % | % | % | % |
2017 Calculations
1 Average age = 100 × Accumulated depreciation ÷ (Gross property, plant and equipment – Land and improvements)
= 100 × ÷ ( – ) = %
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. | Applied Materials Inc.'s average age of depreciable property, plant and equipment improved from 2015 to 2016 and from 2016 to 2017. |
Estimated Total Useful Life
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Gross property, plant and equipment | ||||||
| | Land and improvements | ||||||
| | Depreciation expense | ||||||
| Ratio | |||||||
| | Estimated total useful life (years)1 | ||||||
2017 Calculations
1 Estimated total useful life (years) = (Gross property, plant and equipment – Land and improvements) ÷ Depreciation expense
= ( – ) ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. | Applied Materials Inc.'s estimated total useful life of depreciable property, plant and equipment declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
Estimated Age, Time Elapsed Since Purchase
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Accumulated depreciation | ||||||
| | Depreciation expense | ||||||
| Ratio | |||||||
| | Time elapsed since purchase (years)1 | ||||||
2017 Calculations
1 Time elapsed since purchase (years) = Accumulated depreciation ÷ Depreciation expense
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | Applied Materials Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment improved from 2015 to 2016 and from 2016 to 2017. |
Estimated Remaining Life
| Oct 29, 2017 | Oct 30, 2016 | Oct 25, 2015 | Oct 26, 2014 | Oct 27, 2013 | Oct 28, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Property, plant and equipment, net | ||||||
| | Land and improvements | ||||||
| | Depreciation expense | ||||||
| Ratio | |||||||
| | Estimated remaining life (years)1 | ||||||
2017 Calculations
1 Estimated remaining life (years) = (Property, plant and equipment, net – Land and improvements) ÷ Depreciation expense
= ( – ) ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated remaining life | Applied Materials Inc.'s estimated remaining life of depreciable property, plant and equipment declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
