Microsoft Excel LibreOffice Calc

International Business Machines Corp. (IBM)

Analysis of Property, Plant and Equipment

Difficulty: Advanced

Property, Plant and Equipment Accounting Policy

Property, plant and equipment are carried at cost and depreciated over their estimated useful lives using the straight-line method. The estimated useful lives of certain depreciable assets are as follows: buildings, 30 to 50 years; building equipment, 10 to 20 years; land improvements, 20 years; production, engineering, office and other equipment, 2 to 20 years; and information technology equipment, 1.5 to 5 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term, rarely exceeding 25 years.

Source: 10-K (filing date: 2019-02-26).

Property, Plant and Equipment Disclosure

International Business Machines Corp., balance sheet: property, plant and equipment

US$ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Land and land improvements 448  480  506  558  667 
Buildings and building and leasehold improvements 9,640  10,073  9,763  —  — 
Information technology equipment 17,468  16,874  15,012  —  — 
Production, engineering, office and other equipment 4,080  4,060  3,869  —  — 
Buildings and building improvements —  —  —  6,552  9,524 
Plant, laboratory and office equipment —  —  —  21,116  27,387 
Rental machines 824  844  984  1,116  1,456 
Property, plant and equipment, gross 32,460  32,331  30,134  29,342  39,034 
Accumulated depreciation (21,668) (21,215) (19,304) (18,615) (28,263)
Property, plant and equipment, net 10,792  11,116  10,830  10,727  10,771 

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

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. International Business Machines Corp.’s property, plant and equipment, gross increased from 2016 to 2017 and 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. International Business Machines Corp.’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)

International Business Machines Corp., Property, Plant and Equipment Ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Average age 67.69% 66.61% 65.15% 64.67% 73.66%
Estimated total useful life (years) 10 11 10 11 12
Estimated age, time elapsed since purchase (years) 7 7 7 7 9
Estimated remaining life (years) 3 4 4 4 3

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

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. International Business Machines Corp.’s average age of depreciable property, plant and equipment deteriorated from 2016 to 2017 and 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. International Business Machines Corp.’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. International Business Machines Corp.’s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2016 to 2017 but then slightly improved from 2017 to 2018.
Estimated remaining life International Business Machines Corp.’s estimated remaining life of depreciable property, plant and equipment declined from 2016 to 2017 and from 2017 to 2018.

Average Age

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation 21,668  21,215  19,304  18,615  28,263 
Property, plant and equipment, gross 32,460  32,331  30,134  29,342  39,034 
Land and land improvements 448  480  506  558  667 
Ratio
Average age1 67.69% 66.61% 65.15% 64.67% 73.66%

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Average age = 100 × Accumulated depreciation ÷ (Property, plant and equipment, gross – Land and land improvements)
= 100 × 21,668 ÷ (32,460 – 448) = 67.69%

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. International Business Machines Corp.’s average age of depreciable property, plant and equipment deteriorated from 2016 to 2017 and from 2017 to 2018.

Estimated Total Useful Life

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Property, plant and equipment, gross 32,460  32,331  30,134  29,342  39,034 
Land and land improvements 448  480  506  558  667 
Depreciation expense 3,127  3,021  2,837  2,662  3,145 
Ratio
Estimated total useful life (years)1 10 11 10 11 12

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Estimated total useful life (years) = (Property, plant and equipment, gross – Land and land improvements) ÷ Depreciation expense
= (32,460 – 448) ÷ 3,127 = 10

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. International Business Machines Corp.’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

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Accumulated depreciation 21,668  21,215  19,304  18,615  28,263 
Depreciation expense 3,127  3,021  2,837  2,662  3,145 
Ratio
Time elapsed since purchase (years)1 7 7 7 7 9

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Time elapsed since purchase (years) = Accumulated depreciation ÷ Depreciation expense
= 21,668 ÷ 3,127 = 7

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

Estimated Remaining Life

Microsoft Excel LibreOffice Calc
Dec 31, 2018 Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014
Selected Financial Data (US$ in millions)
Property, plant and equipment, net 10,792  11,116  10,830  10,727  10,771 
Land and land improvements 448  480  506  558  667 
Depreciation expense 3,127  3,021  2,837  2,662  3,145 
Ratio
Estimated remaining life (years)1 3 4 4 4 3

Based on: 10-K (filing date: 2019-02-26), 10-K (filing date: 2018-02-27), 10-K (filing date: 2017-02-28), 10-K (filing date: 2016-02-23), 10-K (filing date: 2015-02-24).

2018 Calculations

1 Estimated remaining life (years) = (Property, plant and equipment, net – Land and land improvements) ÷ Depreciation expense
= (10,792 – 448) ÷ 3,127 = 3

Ratio Description The company
Estimated remaining life International Business Machines Corp.’s estimated remaining life of depreciable property, plant and equipment declined from 2016 to 2017 and from 2017 to 2018.