--- title: "Back to Basics: A Practical Playbook for Reporting PPE" description: Machen McChesney provides business owners with how to report property, plant, and equipment assets on their financial statements. image: https://info.machen.cpa/hubfs/Equipment%20-2195986638-1.jpeg --- [Family of Services](http://machenmcchesney.com/about-us/family-of-companies/)  |  [CPA & Business Advisory](http://machenmcchesney.com)  |  [Payroll, HR & Benefits](http://focuspaysolutions.com/)  |  [Wealth Management](http://machenmcchesney.com/services/financial-planning-and-wealth-mangement-services/) Auburn-Opelika (334) 887-7022 | Montgomery (334) 244-8900 [![mm-re-cobrand-fd-blues](https://info.machen.cpa/hs-fs/hubfs/mm-re-cobrand-fd-blues.png?width=279&height=100&name=mm-re-cobrand-fd-blues.png)](http://machenmcchesney.com) Search this site on Google Search Google Search this site on Google Search Google - [Client Portal](https://machenmcchesney.sharefile.com/Authentication/Login) - [1040 Electronic Organizer](https://www.my1040data.com/account/login/HT7902990) - 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Instead, they’re capitalized on your company’s balance sheet and gradually depreciated over their useful lives. While that sounds easy enough, subtle nuances may trip up small businesses. Here are some tips to help get it right. **Capitalize the full cost** PPE is reported on the balance sheet at historical cost. You should capitalize all costs incurred during an asset’s construction or acquisition that can be directly traced to preparing the asset for service. Historical costs include the amount of cash or cash equivalents paid for an asset, as well as the expenses incurred to relocate the asset and bring it to working condition. Examples of capitalizable costs include: - The purchase price, - Sales tax, - Shipping, and - Installation costs. Additionally, you must capitalize any costs incurred to replace PPE or enhance its productivity. However, you can expense repairs and maintenance costs as incurred. GAAP doesn’t prescribe a dollar threshold for when to capitalize an asset. Instead, management can establish a capitalization threshold for efficiency, provided it doesn’t materially misstate the financial statements. Assets that fall below management’s threshold can be expensed immediately. **Determine the asset’s useful life** An asset’s useful life is the estimated period it contributes to your company’s operations and cash flow. To determine this, consider: - The asset’s expected use, - Any legal or contractual time constraints, - The entity’s historical experience with similar assets and - Obsolescence or other economic factors. Getting this estimate right is crucial. It affects your depreciation schedule — and your company’s reported profits. What happens if a PPE asset is sold, damaged, or otherwise impaired? Under GAAP, you must remove it from the balance sheet and recognize any resulting gain or loss on the income statement. **Select the right depreciation method** Depreciation is meant to allocate the cost of an asset (less any salvage value) over the period that it’s in use. Four common depreciation methods under GAAP are: 1. Straight-line, 2. Sum-of-the-years-digits, 3. Units-of-production, and 4. Declining-balance. For simplicity, some small businesses deviate from GAAP by using the same depreciation method for tax and financial statement purposes. In this situation, the company would issue tax-basis financial statements that would disclose that they haven’t been prepared in accordance with GAAP. The IRS prescribes specific recovery periods for different categories of PPE and provides accelerated depreciation methods. Under current tax law, instead of using the standard Modified Accelerated Cost Recovery System (MACRS) depreciation method, certain entities may choose to immediately deduct a qualified PPE purchase under Section 179 or the bonus depreciation program. This treatment minimizes taxable income in the years the asset is placed in service. However, it may have some unintended consequences for financial reporting purposes. Using accelerated depreciation methods may create a large spread between the asset’s book value and fair market value. Assets contributing to future business operations may have no value on your balance sheet. First-year depreciation write-offs may also artificially reduce profits in the year of acquisition, making it hard to compare a company’s performance over time or against competitors. In years when your business makes significant PPE investments, these effects may raise red flags to lenders or investors. **We can help** PPE reporting involves judgment calls that can impact your financials and tax strategy. Our team can help you navigate these nuances, ensure compliance with the accounting rules, and align your PPE strategy with broader financial goals. **For more information about the above article or other [tax services](https://machen.cpa/services/taxation/), contact Nick Wheeler, CPA at (334) 887-7022 or by leaving us a message below.**  Topics: [Taxation](https://info.machen.cpa/blog/topic/taxation) Search this site on Google Search Google ### Recent Posts ### Subscribe to Blog ### Posts by Category - [Business Tax (356)](https://info.machen.cpa/blog/topic/business-tax) - [Business Advisory (239)](https://info.machen.cpa/blog/topic/business-advisory) - [Payroll, HR & Benefits (124)](https://info.machen.cpa/blog/topic/payroll-hr-benefits) - [Audit & Assurance (113)](https://info.machen.cpa/blog/topic/audit-assurance) - [Accounting & Outsourcing (81)](https://info.machen.cpa/blog/topic/accounting-outsourcing) - [Individual Tax (75)](https://info.machen.cpa/blog/topic/individual-tax) - [Tax Planning (33)](https://info.machen.cpa/blog/topic/tax-planning) - [Tax Updates (25)](https://info.machen.cpa/blog/topic/tax-updates) - [Retirement & Wealth Management Planning (18)](https://info.machen.cpa/blog/topic/retirement-wealth-management-planning) - [Taxation (15)](https://info.machen.cpa/blog/topic/taxation) - [Alerts (13)](https://info.machen.cpa/blog/topic/alerts) - [Business Valuation (11)](https://info.machen.cpa/blog/topic/business-valuation) - [News & Events (11)](https://info.machen.cpa/blog/topic/news-events) - [Tax News (11)](https://info.machen.cpa/blog/topic/tax-news) - [Individual Tax Planning (10)](https://info.machen.cpa/blog/topic/individual-tax-planning) - [Not For Profit (10)](https://info.machen.cpa/blog/topic/not-for-profit) - [Retirement Planning (9)](https://info.machen.cpa/blog/topic/retirement-planning) - [Estate Planning (8)](https://info.machen.cpa/blog/topic/estate-planning) - [Manufacturing Industry Insights (7)](https://info.machen.cpa/blog/topic/manufacturing-industry-insights) - [Individuals (1)](https://info.machen.cpa/blog/topic/individuals) - [Insider (1)](https://info.machen.cpa/blog/topic/insider) - [Professional Standard News (1)](https://info.machen.cpa/blog/topic/professional-standard-news) see all [![Returning\_Value](https://info.machen.cpa/hs-fs/file-2504250850-jpg/Machen-Blog-Image/Returning_Value.jpg)](http://machenmcchesney.com/about-us/mission-and-values/) - [![AICPA](https://machenmcchesney.com/img/logos/aicpa.jpg)](https://www.aicpa-cima.com/) - [![NACVA](https://machenmcchesney.com/img/logos/nacva.jpg)](http://www.nacva.com/) - ![2026 INSIDE Public Accounting Top 400](https://machenmcchesney.com/img/2026-ipa-top-400.jpg) - ![2026 Best of Auburn-Opelika](https://machenmcchesney.com/img/2026-best-of-auburn-opelika.jpg) - [![2025 Best of OA](https://machenmcchesney.com/img/2025-best-of-oa.jpg)](https://oanow.com/exclusive/readerschoice/ballot-2025/) - ![2026 Best of OA Winner](https://machenmcchesney.com/img/2026-best-of-oa-winner.jpg) - [![2025 Accounting Today Regional Leaders](https://machenmcchesney.com/img/2025-accounting-today-regional-leaders.jpg)](https://www.accountingtoday.com/) - [![ClearlyRated Best of Accounting](https://machenmcchesney.com/img/2024-best-of-accounting.jpg)](https://www.clearlyrated.com/accounting) - [![ClearlyRated Best of Accounting Employee](https://machenmcchesney.com/img/2024-best-of-accounting-employee.jpg)](https://www.clearlyrated.com/accounting) 1820 East University Drive, Auburn, AL 36830 | Tel: (334) 887-7022 | Fax: (334) 887-7221 1761 Taliaferro Trail, Montgomery, AL 36117 | Tel: (334) 244-8900 | Fax: (334) 364-0927 † This is not a CPA firm. \* Assurance, attest, and audit services provided by Frazier & Deeter, LLC. “Frazier & Deeter” is the brand name under which Frazier & Deeter, LLC\* and Frazier & Deeter Advisory, LLC† and its subsidiary entities provide professional services. 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