Long-lived assets are land, buildings, equipment, vehicles, and other property that you use to make money for your business. These are purchased with the intention of owning them and using them for many years. They are also referred to as Property, plant and equipment, or “PP&E.”
|Horse racing by Paolo Camera, on Flickr|
Business people should understand that long-lived assets must be productive – they must increase revenues or profits. For example, a food delivery service will need to own and maintain trucks. An online business may need to invest in computer servers and other critical equipment. A retail store will need display fixtures.
Accounting Trivia: Long-lived assets need not be inert. Dairy cattle would be long-lived assets for a farmer. Racehorses would be long-lived assets for their owners.
In the past few years, many business people have tried to reduce their long-lived assets. Bricks-and-mortar stores have been replaced by sophisticated websites. Computer servers have been replaced by “the cloud.” Reducing your investment in long-lived assets allows you to create and run your business with less capital. It also reduces the cost of maintaining your long-lived assets.
Some long-lived assets are intangible, such as patents, trademarks, copyrights, and goodwill. I will explain the nature of these in a future post.