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Analysis of Property, Plant and Equipment

Difficulty: Advanced


Property, Plant and Equipment Accounting Policy

Property, plant and equipment are recorded at cost, including any asset retirement obligations, less accumulated depreciation. For financial reporting, the straight-line method of depreciation is used over the estimated useful lives of 10 to 50 years for buildings and improvements and 2 to 16 years for machinery and equipment. Recognition of the fair value of obligations associated with the retirement of tangible long-lived assets is required when there is a legal obligation to incur such costs. Upon initial recognition of a liability, the cost is capitalized as part of the related long-lived asset and depreciated over the corresponding asset’s useful life.

Source: 10-K (filing date: 2019-02-08).


Property, Plant and Equipment Disclosure

Honeywell International Inc., Statement of Financial Position, Property, Plant and Equipment

USD $ in millions

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Land and improvements 262  287  363  367  343 
Machinery and equipment 9,435  10,762  9,956  10,505  10,313 
Buildings and improvements 3,125  3,463  3,248  3,188  3,119 
Construction in progress 588  675  940  848  727 
Property, plant and equipment, gross 13,410  15,187  14,507  14,908  14,502 
Accumulated depreciation (8,114) (9,261) (8,714) (9,119) (9,119)
Property, plant and equipment, net 5,296  5,926  5,793  5,789  5,383 

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

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. Honeywell International Inc.’s property, plant and equipment, gross increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
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. Honeywell International Inc.’s property, plant and equipment, net increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Property, Plant and Equipment Ratios (Summary)

Honeywell International Inc., Property, Plant and Equipment Ratios

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Average age 61.71% 62.15% 61.61% 62.71% 64.40%
Estimated total useful life (years) 18 21 19 22 21
Estimated age, time elapsed since purchase (years) 11 13 12 14 14
Estimated remaining life (years) 7 8 7 8 8

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

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. Honeywell International Inc.’s average age of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 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. Honeywell International Inc.’s estimated total useful life of depreciable property, plant and equipment increased from 2016 to 2017 but then declined significantly from 2017 to 2018.
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. Honeywell International Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Estimated remaining life Honeywell International Inc.’s estimated remaining life of depreciable property, plant and equipment increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Average Age

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD $ in millions)
Accumulated depreciation 8,114  9,261  8,714  9,119  9,119 
Property, plant and equipment, gross 13,410  15,187  14,507  14,908  14,502 
Land and improvements 262  287  363  367  343 
Ratio
Average age1 61.71% 62.15% 61.61% 62.71% 64.40%

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Average age = 100 × Accumulated depreciation ÷ (Property, plant and equipment, gross – Land and improvements)
= 100 × 8,114 ÷ (13,410262) = 61.71%

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. Honeywell International Inc.’s average age of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Estimated Total Useful Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD $ in millions)
Property, plant and equipment, gross 13,410  15,187  14,507  14,908  14,502 
Land and improvements 262  287  363  367  343 
Depreciation expense 721  717  726  672  667 
Ratio
Estimated total useful life (years)1 18 21 19 22 21

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Estimated total useful life (years) = (Property, plant and equipment, gross – Land and improvements) ÷ Depreciation expense
= (13,410262) ÷ 721 = 18

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. Honeywell International Inc.’s estimated total useful life of depreciable property, plant and equipment increased from 2016 to 2017 but then declined significantly from 2017 to 2018.

Estimated Age, Time Elapsed since Purchase

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD $ in millions)
Accumulated depreciation 8,114  9,261  8,714  9,119  9,119 
Depreciation expense 721  717  726  672  667 
Ratio
Time elapsed since purchase (years)1 11 13 12 14 14

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Time elapsed since purchase (years) = Accumulated depreciation ÷ Depreciation expense
= 8,114 ÷ 721 = 11

Ratio Description The company
Estimated time elapsed since purchase The approximate age in years of a company’s fixed assets. Useful for comparison purposes. Honeywell International Inc.’s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Estimated Remaining Life

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Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (USD $ in millions)
Property, plant and equipment, net 5,296  5,926  5,793  5,789  5,383 
Land and improvements 262  287  363  367  343 
Depreciation expense 721  717  726  672  667 
Ratio
Estimated remaining life (years)1 7 8 7 8 8

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-09), 10-K (filing date: 2017-02-10), 10-K (filing date: 2016-02-12), 10-K (filing date: 2015-02-13).

2018 Calculations

1 Estimated remaining life (years) = (Property, plant and equipment, net – Land and improvements) ÷ Depreciation expense
= (5,296262) ÷ 721 = 7

Ratio Description The company
Estimated remaining life Honeywell International Inc.’s estimated remaining life of depreciable property, plant and equipment increased from 2016 to 2017 but then declined significantly from 2017 to 2018.