.Analysis of Property, Plant and Equipment
Difficulty: Advanced
Property, Plant and Equipment Accounting Policy
Property, Plant and Equipment
Property, plant and equipment is stated at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value. The cost of additions and substantial improvements to property, plant and equipment is capitalized, and includes internal compensation costs for these projects; however, noncash actuarial gains or losses included in compensation costs are excluded from amounts reported as "capital expenditures." The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment costs are depreciated using straight-line methods over their estimated economic lives. Certain subsidiaries follow composite group depreciation methodology. Accordingly, when a portion of their depreciable property, plant and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation, and no gain or loss is recognized on the disposition of these assets.
Property, plant and equipment is reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. AT&T recognizes an impairment loss when the carrying amount of a long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.
The liability for the fair value of an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, AT&T recognizes period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. The increase in the carrying value of the associated long-lived asset is depreciated over the corresponding estimated economic life.
Software Costs
AT&T capitalizes certain costs incurred in connection with developing or obtaining internal-use software. Capitalized software costs are included in "Property, Plant and Equipment" on AT&T's consolidated balance sheets. In addition, there is certain network software that allows the equipment to provide the features and functions unique to the AT&T network, which AT&T includes in the cost of the equipment categories for financial reporting purposes.
AT&T amortize the capitalized software costs over a three-year to five-year period, reflecting the estimated period during which these assets will remain in service, which also aligns with the estimated useful lives used in the industry.
Source: AT&T Inc., Annual Report
Property, Plant and Equipment Disclosure
AT&T Inc., Statement of Financial Position, Property, Plant and Equipment
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Land | |||||
| | Buildings and improvements | |||||
| | Central office equipment | |||||
| | Cable, wiring and conduit | |||||
| | Satellites | |||||
| | Other equipment | |||||
| | Software | |||||
| | Under construction | |||||
| | Property, plant and equipment, gross | |||||
| | Accumulated depreciation and amortization | |||||
| | Property, plant and equipment, net |
Source: Based on data from AT&T Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Land | Carrying amount as of the balance sheet date of real estate held for productive use. This excludes land held for sale. | AT&T Inc.'s land increased from 2015 to 2016 but then declined significantly 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. | AT&T Inc.'s buildings and improvements increased from 2015 to 2016 and from 2016 to 2017. |
| Under construction | 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. | AT&T Inc.'s under construction declined from 2015 to 2016 and from 2016 to 2017. |
| 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. | AT&T Inc.'s property, plant and equipment, gross increased from 2015 to 2016 but then slightly declined 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. | AT&T Inc.'s property, plant and equipment, net increased from 2015 to 2016 and from 2016 to 2017. |
Property, Plant and Equipment Ratios (Summary)
AT&T Inc., Property, Plant and Equipment Ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | 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. | AT&T Inc.'s average age of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 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. | AT&T 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. | AT&T Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Estimated remaining life | AT&T Inc.'s estimated remaining life of depreciable property, plant and equipment declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
Average Age
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| | Accumulated depreciation and amortization | |||||
| | Property, plant and equipment, gross | |||||
| | Land | |||||
| Ratio | ||||||
| | Average age1 | % | % | % | % | % |
2017 Calculations
1 Average age = 100 × Accumulated depreciation and amortization ÷ (Property, plant and equipment, gross – Land)
= 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. | AT&T Inc.'s average age of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level. |
Estimated Total Useful Life
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| | Property, plant and equipment, gross | |||||
| | Land | |||||
| | Depreciation expense | |||||
| Ratio | ||||||
| | Estimated total useful life (years)1 | |||||
2017 Calculations
1 Estimated total useful life (years) = (Property, plant and equipment, gross – Land) ÷ 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. | AT&T 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
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| | Accumulated depreciation and amortization | |||||
| | Depreciation expense | |||||
| Ratio | ||||||
| | Time elapsed since purchase (years)1 | |||||
2017 Calculations
1 Time elapsed since purchase (years) = Accumulated depreciation and amortization ÷ 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. | AT&T Inc.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2015 to 2016 and from 2016 to 2017. |
Estimated Remaining Life
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | ||||||
| | Property, plant and equipment, net | |||||
| | Land | |||||
| | Depreciation expense | |||||
| Ratio | ||||||
| | Estimated remaining life (years)1 | |||||
2017 Calculations
1 Estimated remaining life (years) = (Property, plant and equipment, net – Land) ÷ Depreciation expense
= ( – ) ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated remaining life | AT&T Inc.'s estimated remaining life of depreciable property, plant and equipment declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level. |
