.Analysis of Property, Plant and Equipment
Difficulty: Advanced
Property, Plant and Equipment Accounting Policy
Property, plant and equipment is stated at cost less accumulated depreciation on the Consolidated Balance Sheets. Depreciation is recognized over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the term of the lease or the estimated useful lives of the improvements. The estimated useful lives of assets are primarily as follows:
| Data processing equipment | 2 to 5 years |
| Buildings | 20 to 40 years |
| Furniture and fixtures | 4 to 7 years |
ADP has obligations under various facilities and equipment leases. ADP assesses whether these arrangements meet the criteria for capital leases by determining whether the agreement transfers ownership of the asset, whether the lease includes a bargain purchase option, whether the lease term is for greater than 75% of the asset's useful life, or whether the minimum lease payments exceed 90% of the leased equipment's fair market value. All of ADP's leases are classified as operating leases. Total expense under these operating lease agreements was approximately $234.5 million, $201.7 million, and $201.8 million in fiscal 2017, 2016, and 2015, respectively.
Source: Automatic Data Processing Inc., Annual Report
Property, Plant and Equipment Disclosure
Automatic Data Processing Inc., Statement of Financial Position, Property, Plant and Equipment
USD $ in thousands
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Land and buildings | ||||||
| | Data processing equipment | ||||||
| | Furniture, leaseholds, and other | ||||||
| | Property, plant, and equipment, gross | ||||||
| | Accumulated depreciation | ||||||
| | Property, plant, and equipment, net |
Source: Based on data from Automatic Data Processing Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Property, plant, and equipment, gross | 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. | Automatic Data Processing Inc.'s property, plant, and equipment, gross 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. | Automatic Data Processing Inc.'s property, plant, and equipment, net increased from 2015 to 2016 and from 2016 to 2017. |
Property, Plant and Equipment Ratios (Summary)
Automatic Data Processing Inc., Property, Plant and Equipment Ratios
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 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. | Automatic Data Processing Inc.'s average age of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level. |
| 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. | Automatic Data Processing Inc.'s estimated total useful life of depreciable property, plant and equipment declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | Automatic Data Processing 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 | Automatic Data Processing 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
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | |||||||
| | Accumulated depreciation | ||||||
| | Property, plant, and equipment, gross | ||||||
| Ratio | |||||||
| | Average age1 | % | % | % | % | % | % |
2017 Calculations
1 Average age = 100 × Accumulated depreciation ÷ Property, plant, and equipment, gross
= 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. | Automatic Data Processing Inc.'s average age of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level. |
Estimated Total Useful Life
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | |||||||
| | Property, plant, and equipment, gross | ||||||
| | Depreciation of property, plant and equipment | ||||||
| Ratio | |||||||
| | Estimated total useful life (years)1 | ||||||
2017 Calculations
1 Estimated total useful life (years) = Property, plant, and equipment, gross ÷ Depreciation of property, plant and equipment
= ÷ =
| 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. | Automatic Data Processing Inc.'s estimated total useful life of depreciable property, plant and equipment declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
Estimated Age, Time Elapsed Since Purchase
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | |||||||
| | Accumulated depreciation | ||||||
| | Depreciation of property, plant and equipment | ||||||
| Ratio | |||||||
| | Time elapsed since purchase (years)1 | ||||||
2017 Calculations
1 Time elapsed since purchase (years) = Accumulated depreciation ÷ Depreciation of property, plant and equipment
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | Automatic Data Processing 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
| Jun 30, 2017 | Jun 30, 2016 | Jun 30, 2015 | Jun 30, 2014 | Jun 30, 2013 | Jun 30, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in thousands) | |||||||
| | Property, plant, and equipment, net | ||||||
| | Depreciation of property, plant and equipment | ||||||
| Ratio | |||||||
| | Estimated remaining life (years)1 | ||||||
2017 Calculations
1 Estimated remaining life (years) = Property, plant, and equipment, net ÷ Depreciation of property, plant and equipment
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated remaining life | Automatic Data Processing 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. |
