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Property Plant & Equipment
Property Plant & Equipment
Gutierrez, CPA
DEFINITIONS
a. Biological Asset – is a living animal or plant
b. Agricultural Produce – is the harvested product of the entity’s biological assets.
Biological assets Agricultural produce Inventory
Trees in a plantation forest Felled trees Logs, Lumber
Plants Harvested cane Sugar
1 Corn GOVERNMENT ACCOUNTING
Corn Starch
Cotton Clothing
Dairy cattle Milk Cheese
Sheep Wool Yarn, Carpet
Pigs Carcass Ham
Bushes Leaf Tea
Vines Grapes Wine
Fruit trees Picked fruit Processed fruit
MEASUREMENT
• Biological assets - initially and subsequently measured at fair value less costs to sell.
If there are more than one active markets, the entity shall use the price in the market
expected to be used.
If there is no active market, the entity shall estimate the market price based on one of
the following:
• Most recent market transaction price
• Market prices for similar assets with adjustment to reflect differences
• Sector benchmarks
• Present value of expected net cash flows from the asset.
DISCLOSURES
• Consumable and Bearer biological assets
– Consumable Biological Assets – are those that are to be harvested as
agricultural produce or to be sold or distributed as biological assets.
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– Bearer Biological Assets – are those that are self-generating and are used
repeatedly for more than one year.
• Mature and immature biological assets
– Mature Biological Assets – are those that have attained harvestable
specifications or are able to sustain regular harvests.
• The amount of change in fair value less costs to sell due to physical changes and due
to price changes.
Investment Property – is land and/or building held for rentals or capital appreciation.
Examples:
a. Land held for long-term capital appreciation rather than for short-term sale in the
ordinary course of operations.
b. Land held for a currently undetermined future use.
c. A building owned by the entity (or held by the entity under a finance lease) and
leased out under one or more operating leases on a commercial basis.
d. A building that is vacant but is held to be leased out under one or more operating
leases.
Katrine Celine C. Gutierrez, CPA
e. Property that is being constructed or developed for future use as investment property.
The following are NOT considered investment property:
• Biological assets and Mineral rights and mineral reserves
• Property held for sale in the ordinary course of operations
• Property being constructed on behalf of third parties.
• Property held for future development and subsequent use as owner-occupied
property.
• Property occupied by employees.
• Owner-occupied property awaiting disposal.
• Property that is leased to another entity under a finance lease.
• Property held to provide a social service and which also generates cash inflows.
• Property held for strategic purposes.
• Property held for use in the production or supply of goods or services or for
administrative purposes.
INITIAL MEASUREMENT
• An investment property is initially measured at cost. The measurement of cost
depends on the mode of acquisition.
• Modes of Acquisition
3 GOVERNMENT ACCOUNTING
a. Cash purchase – purchase price plus direct costs necessary in bringing the asset to its
intended condition.
b. Installment purchase – cash price equivalent
c. Non-exchange transaction – fair value at acquisition date
d. Self-construction – direct materials, labor, and construction overhead
SUBSEQUENT MEASUREMENT
• Investment properties are subsequently measured at cost less accumulated
depreciation and accumulated impairment losses (i.e., Cost Model).
• Note: The fair value model is not allowed for government entities.
IPSAS/PPSAS 17 applies to Property, Plant and Equipment (PPE), including Specialist Military
Equipment and Infrastructure Assets. This standard neither require nor prohibit the
recognition of heritage assets. However, an entity which recognizes heritage assets is
required to comply with the disclosure requirements of this standard. Property, plant and
equipment are tangible items that are:
Katrine Celine C. Gutierrez, CPA
a. held for use in the production or supply of goods, services or program outputs, for
rental to others, or for administrative purposes, and not intended for resale in the
ordinary course of operations; and
b. expected to be used for more than one reporting period
The useful life of PPE is the period over which an asset is expected to be available for use by
an entity; or a number of production or similar units expected to be obtained from the asset
by an entity.
RECOGNITION
Section 3, Chapter 10 – PPE, GAM provides that the cost of an item of PPE shall be
recognized as an asset if, and only if:
1. It is probable that future economic benefits or service potential associated with the
items will flow to the entity; and
2. The cost or fair value can be measured reliably.
3. Beneficial ownership and control clearly rest with the government.
4. The asset is used to achieve government objectives.
5. It meets the capitalization threshold of P15,000.
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The capitalization threshold of P15,000, as initially discussed in the preceding section,
represents the minimum cost of an individual asset recognized as a PPE on the Statement of
Financial Position. Some items may have individual values below the threshold but which
work together as a group of network asset whose total value exceeds the threshold shall be
recognized as part of the primary PPE (e.g. computer network). This threshold shall be
applied on an individual asset or per item basis. Each item within the bulk acquisition with
total value of PPE will need to meet the capitalization threshold to be recognized as PPE.
Major spare parts and stand-by equipment qualify as PPE when an entity expects to use
them for more than one period. Similarly, if the spare parts and servicing equipment can be
used only in connection with an item of PPE, they may be accounted as PPE.
INITIAL MEASUREMENT
• PPE are initially measured at cost. Cost comprises the following:
a. Purchase price, including non-refundable taxes but excluding trade and cash
discounts;
b. Direct costs; and
c. Present value of decommissioning and restoration costs .
• Costs of employee benefits arising directly from the construction or acquisition of PPE;
• Costs of site preparation;
• Initial delivery and handling costs (e.g., freight costs);
• Installation and assembly costs;
• Testing costs, net of disposal proceeds of samples generated during testing; and
• Professional fees.
MODES OF ACQUISITION
a. Acquisition by Purchase
b. Acquisition by Construction
c. Acquisition through Exchange
5 GOVERNMENT ACCOUNTING
d. Acquisition through Non-Exchange Transaction
e. Acquisition through Intra-agency or Inter-agency Transfers
Subsequent to recognition, an entity shall choose either the cost model or the revaluation
model as its accounting policy and shall apply that policy to the entire class of PPE.
Under the cost model, an item of PPE shall be carried at its cost less any accumulated
depreciation and any accumulated impairment losses.
Under the revaluation model, an item of PPE, whose fair value can be measured reliably shall
be carried at revalued amount less any subsequent accumulated depreciation and
subsequent accumulated impairment losses.
Depreciation is charged systematically over the useful life of the depreciable asset.
Depreciation begins when it is available for use and even it is idle or retired from active use
and held for disposal because depreciation ceases when derecognized or fully depreciated.
The estimation of useful life of the asset is a matter of judgment based on the experience of
the entity with similar assets.
A residual value equivalent to at least five percent (5%) of the cost shall be adopted unless a
more appropriate percentage is determined by the entity based on its operations subject to
6 the approval of COA. Generally, infrastructure assets have no residual value. ACCOUNTING
GOVERNMENT
The residual value and useful life of an asset shall be reviewed at least at each annual
reporting date and, if expectations differ from previous estimate, the change shall be
accounted for as a change in accounting estimate.
INFRASTRUCTURE ASSETS
According to IPSAS 17, the ownership of infrastructure asset is not confined for entities in the
public sector, however significant infrastructure assets are frequently found in the public
sector. To identify these assets as infrastructure, the following characteristics may be useful:
Examples of infrastructure assets, provided by this standard, include road network, sewer
systems, water and power supply systems, and communication networks.
Katrine Celine C. Gutierrez, CPA
7 GOVERNMENT ACCOUNTING