Let’s take a final look at the assets section of the balance sheet for Facebook, Inc., focusing on PP&E. Notice the title of that line specifically states, “Property and equipment, net,” which means that the $35.323 billion dollars in PP&E is stated net of accumulated depreciation, meaning it is the book value of those assets.

See the balance sheet long description here.

Let’s also look at Note 6 again. In 2019, accumulated depreciation is almost $11 billion, up from $7 billion in 2018.

See the note long description here.

The rest of the text of Note 6 states:

Depreciation expense on property and equipment were $5.18 billion, $3.68 billion, and $2.33 billion for the years ended December 31 of 2019, 2018, and 2017, respectively. The majority of the PP&E depreciation expense was from network equipment depreciation of $3.83 billion, $2.94 billion, and $1.84 billion for the years ended December 31 of 2019, 2018, and 2017, respectively. Construction in progress includes costs mostly related to construction of data centers, network equipment infrastructure (to support our data centers around the world), and office buildings. No interest was capitalized for any period presented.

In addition, on pages 82–83 in Note 1, entitled Summary of Significant Accounting Policies, that starts on page 79, the company discloses its general policies around reporting fixed assets and calculating depreciation. Most of these general policies you should recognize by now:

PP&E, which includes amounts recorded under finance leases, are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the remaining lease term, whichever is shorter.

The estimated useful lives of property and equipment are described below:

Property and Equipment	Useful Life
Network equipment	3– 20 years
Buildings	3–30 years
Computer software, office equipment and other	2–5 years
Finance lease right-of-use assets	3–20 years
Leasehold improvements	Lesser of estimated useful life or remaining lease term

The useful lives of our property and equipment are determined by management when those assets are initially recognized and are routinely reviewed for the remaining estimated useful lives. Our current estimate of useful lives represents the best estimate of the useful lives based on current facts and circumstances but may differ from the actual useful lives due to changes in future circumstances, such as changes to our business operations, changes in the planned use of assets, and technological advancements. When we change the estimated useful life assumption for any asset, the remaining carrying amount of the asset is accounted for prospectively and depreciated or amortized over the revised estimated useful life. Historically, changes in useful lives have not resulted in material changes to our depreciation and amortization expense.

Land and assets held within construction in progress are not depreciated. Construction in progress is related to the construction or development of PP&E that have not yet been placed in service for their intended use.

The cost of maintenance and repairs is expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from their respective accounts, and any gain or loss on such sale or disposal is reflected in income from operations.

You may be surprised now by how much of these financial statement disclosures you understand. You know property and equipment net means book value. You recognize the different subcategories of PP&E listed in Note 6, and you know accumulated depreciation is all the prior depreciation expense taken minus any accumulated depreciation that was attached to assets sold. You know how straight-line depreciation expense is calculated (Facebook, Inc. likely uses accelerated depreciation for tax purposes, which is allowed under both tax law and GAAP). You understand the concept of useful life and of capitalization.

You may have caught the line where the company says, “Construction in progress includes costs mostly related to construction of data centers, network equipment infrastructure to support our data centers around the world, and office buildings. No interest was capitalized for any period presented.” That statement probably means the company did not borrow any money for the construction in progress. If it had, it would be capitalizing interest as part of construction. In the second to the last paragraph of the accounting policies statement, you may have noticed the company addressing both concepts of estimates and materiality, and in the last paragraph you saw the company address both repairs and maintenance (expensed as period expenses) and  gains and losses on retirement of assets.

Now, with your new knowledge about the ways PP&E is addressed and assessed, you will be able to read a company’s financial statements with a greater depth of understanding.