What are property, plant and equipment
What is a ‘Property, plant and equipment register’
Financial recording of property, plant and equipment
Who owns the property, plant and equipment
Property, Plant and Equipment Management
As a large proportion of a church’s assets are typically in property, plant and equipment, it is critical that the church manages these items effectively.
What are property, plant and equipment?
Property, plant and equipment are tangible assets that are held for use by the church over an extended period of time. They include land and buildings, building improvements, furniture and fittings, computer and office equipment, lighting and audio equipment (including instruments), kitchen appliances, cleaning equipment and motor vehicles.
Churches should maintain accurate records in relation to property, plant and equipment for various reasons, including:
- To ensure the correct value of assets is disclosed to the members;
- To enable an accurate list of items to be maintained for insurance purposes; and
- From a stewardship perspective, to ensure that all assets are maintained and used appropriately and not lost, stolen or otherwise put out of service.
A simple and effective way to manage these assets is to maintain a property, plant and equipment register.
What is a Property, plant and equipment register?
The register is a list of all assets detailing purchase price and current value taking into account any accumulated depreciation. A property, plant and equipment register should include:
- Purchase date;
- Purchase price;
- A short description of the asset;
- The location of the asset;
- The insurance value; and
- Details of the calculation of depreciation and accumulated depreciation.
(These are discussed in detail below)
It is also appropriate to group similar assets in the same place in the register, for example, office equipment can all be included under the same heading, whereas equipment located in the church worship area should be included under another heading. Structuring the register in this way will help when it is being reviewed to ensure all items included in it are still held.
Performing a stock take
Part of maintaining a property, plant and equipment register is ensuring that all of the assets in the register still exist and are not damaged or obsolete. A good way of ensuring this is to perform a property, plant and equipment stock take.
A stock take involves physically examining all of the assets in the property, plant and equipment register. Using a copy of the register, each asset should be sighted and examined for damage or obsolescence. The details of the location of the assets in the register will assist in locating the assets. All of the assets should be marked on the register when sighted and any necessary amendments to the register should be noted. Any assets not on the register should be added.
Financial recording of property, plant and equipment
What is capitalisation?
Capitalisation is the treatment of property, plant and equipment purchases as assets for accounting purposes i.e. property, plant and equipment will be included as an asset in the Balance Sheet. When these purchases are not capitalised, they are expensed at the time of purchase.
Normally churches are exempt from income tax and are therefore not required to comply with taxation legislation in relation to capitalisation of assets. However in some circumstances it may be beneficial for churches to capitalise property, plant and equipment. Capitalisation may give a more accurate picture of the asset position of the church. Capitalisation will also mean that the Profit and Loss Statement will not be detrimentally affected by large property, plant and equipment purchases. The church should develop a policy in relation to the capitalisation of assets. For example, it may be appropriate for the church to only capitalise purchases over $500.
Many small churches expense rather than capitalise plant and equipment. In many instances, capitalisation of plant and equipment is not readily understood by the leaders and members of the church and therefore a straight cash accounting method may be preferable in these circumstances. However larger churches will need to consider their church structure and their legal financial reporting requirements.
Note that it is useful to maintain a property, plant and equipment register even if the church does not capitalise purchases.
What is depreciation?
If a church capitalises assets, it is then appropriate to depreciate those assets. Depreciation is a reduction in the value of an asset over time. It is calculated on the expected useful life of an asset. The cost of the asset divided by the expected life will give the current year depreciation (based on a straight line calculation of depreciation). This will be an expense (debit (DR) entry) and an increase in accumulated depreciation (credit (CR) entry). Accumulated depreciation is a credit account that forms part of property, plant and equipment. The asset’s cost less its accumulated depreciation will give the written down value. Accumulated depreciation will continue to increase until the written down value becomes zero, at the end of the asset’s expected life.
The Australian Taxation Office has a Depreciation and Capital Allowances Tool.
The table below has some guidelines for useful life of different assets:
|Useful Life (Years)
Who owns the property, plant and equipment?
One of the most critical issues with property, plant and equipment management for churches is determining who owns church property. Churches which are part of a denomination may have property either owned by the denominational authority or held in the name of the denomination authority in trust for the church. The church should clearly establish who owns the property and whether it should be capitalised in the church’s balance sheet. The church should also establish who is responsible for the maintenance and insurance of the property.