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Analysis of Property, Plant and Equipment
Difficulty: Advanced
Property, Plant and Equipment Accounting Policy
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. 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 amortizes the capitalized software costs over a three-year to seven-year period, reflecting the estimated period during which these assets will remain in service.
Source: 10-K (filing date: 2019-02-20).
Property, Plant and Equipment Disclosure
AT&T Inc., Statement of Financial Position, Property, Plant and Equipment
USD $ in millions
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| Property, plant and equipment, gross | |
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| Accumulated depreciation and amortization | |
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| Property, plant and equipment, net | |
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Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20).
| Item | Description | The company |
|---|---|---|
| Property, plant and equipment, gross | Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | AT&T Inc.’s property, plant and equipment, gross declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level. |
| Property, plant and equipment, net | Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | AT&T Inc.’s property, plant and equipment, net increased from 2016 to 2017 and from 2017 to 2018. |
Property, Plant and Equipment Ratios (Summary)
AT&T Inc., Property, Plant and Equipment Ratios
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
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| Estimated age, time elapsed since purchase (years) | |
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| Estimated remaining life (years) | |
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Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20).
| 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 improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018. |
| 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 increased from 2016 to 2017 and from 2017 to 2018. |
| 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 2016 to 2017 and from 2017 to 2018. |
| Estimated remaining life | AT&T Inc.’s estimated remaining life of depreciable property, plant and equipment increased from 2016 to 2017 and from 2017 to 2018. |
Average Age
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20).
2018 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 improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018. |
Estimated Total Useful Life
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20).
2018 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 increased from 2016 to 2017 and from 2017 to 2018. |
Estimated Age, Time Elapsed since Purchase
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20).
2018 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 2016 to 2017 and from 2017 to 2018. |
Estimated Remaining Life
Based on: 10-K (filing date: 2019-02-20), 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20).
2018 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 increased from 2016 to 2017 and from 2017 to 2018. |