Panganiban, Jade Anne C.

BSA 2105

1. What is Property, Plant and Equipment? Give examples

Property, Plant and Equipment are tangible assets that are held for use in the
production or supply of goods or services, for rental to others, or for administrative
purposes. These are expected to be used during more than one period. Property, Plant,
and Equipment are also called fixed assets of the company as it cannot be easily
liquidated. Examples of Property, Plant and Equipment are land, building, vehicle,
machinery, furniture and fixtures, computer equipment, bearer plant and etc.

2. Discuss the recognition and measurement of PPE.

Recognition means incorporation of the item in the business’s accounts, in this
case as a non-current assets. The recognition of property, plant and equipment depends
on two criteria: It is probable that future economic benefits associated with the asset will
flow to the entity and the cost of the asset to the entity can be measured reliably. These
recognition criteria apply to subsequent expenditure as well as costs incurred initially.
There are no separate criteria for recognizing subsequent expenditure.
Once an item of property, plant and equipment qualifies for recognition as an
asset, it will initially be measured at cost. Cost of an item of property, plant and
equipment have different components. These are the purchase price, less any trade
discount or rebate, import duties and non-refundable purchase taxes, directly attribute
costs of bringing the asset to working condition for its intended use for example the cost
of site preparation and professional fees and the last component is the initial estimate of
the unavoidable cost of dismantling and removing the asset and restoring the site on
which it is located. Administration and other general overhead costs, start-up and similar
pre-production costs and initial operating losses before the asset reaches planned
performance will not be part of the cost of property, plant and equipment unless they can
be attributed directly to the asset’s acquisition, or bringing it into its working condition.

3. What is Investment Property? Distinguish Investment Property and Property, Plant and
Equipment.
Investment Property is property (land or building or part of the building or both)
held by the owner or by the lessee as right of use asset to earn rentals or for capital
 appreciation or both rather than for use in the production or supply of goods or services
or for administrative purposes and sale in the ordinary course of business which are the
main uses of property, plant and equipment. Property, Plant and Equipment allows two
possible treatment and these are Cost model and Revaluation model. On the other
hand the subsequent measure of Investment Property is the Fair value model and Cost
model. The examples of investment property include land held for long term capital
appreciation rather than for short term sale in the ordinary course of business, A building
owned by the reporting entity and leased out under an operating lease, A building held
by a parent and leased to a subsidiary and Property that is being constructed or
developed for future use as an investment property.

4. Discuss the Depreciation for Property, Plant and Equipment.

The standards states that the depreciable amount of an item of property, plant
and equipment should be allocated on a systematic basis over its useful life. Also the
depreciation method used should reflect the pattern in which the asset’s economic
benefits are consumed by the entity and lastly, the depreciation charge for each period
should be recognized as an expense unless it is included in the carrying amount of
another asset.
Even when purchased together, land and buildings are treated separately because land
has an unlimited life and hence does not depreciate. Buildings, on the other hand, have
a limited life and must be depreciated. Any increase in the value of land on which a
building is standing will have no impact on the determination of the building’s useful life.

5. What is Qualifying Assets? How would you account for borrowing costs related to
Qualifying Assets?
A Qualifying assets are assets that necessarily takes a substantial period of time
to get ready for its intended use of sale. Only borrowing costs directly related to the
acquisition, building, or production of a qualifying asset are eligible to be capitalized as
part of the asset's cost. The standard establishes criteria for evaluating which borrowing
costs are eligible for capitalization.
Once the relevant borrowings relating to a specific asset have been identified,
the amount of borrowing costs available for capitalization will be the actual borrowing
costs incurred on those borrowings during the period, less any investment income on
those borrowings' temporary investment. It is not uncommon for some or all of the funds
to be invested before they are actually used on the qualifying asset.