DEPUNO, RICHARD VINCE MARFIL March 4, 2021

BSA - 3 [45227] Ms. Leneilyn M. Poblete, CPA

Compilation in Accounting for Government and Non-profit Organizations

PROPERTY, PLANT AND EQUIPMENT

Introduction

 Property, Plant and Equipment are:

a. Tangible assets;
b. 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
c. Expected to be used for more than one reporting period.

recognition

 For government entities, the capitalization threshold for PPE is P15,000.

measurement

 PPE are initially measured at cost. Cost comprises the purchase price, including non-
refundable taxes but excluding trade and cash discounts; direct costs; and present value of
decommissioning and restoration costs.

Modes of acquisition

 Promotional items:
 If the same, allocate total cost to all items acquired including the promotional item.
 If different, assign the promotional item its fair value; the remainder to the other items
acquired.

 Acquisition by Construction:
 Through Construction Contract – cost is contract price.
 By Administration – cost is sum of direct materials, direct labor, and overhead.

 Construction costs are initially recorded in the Construction in Progress account.

 Acquisition through Exchange:

 With commercial substance – (1) fair value of asset given up plus cash paid or
minus any cash received, (2) fair value of asset received plus cash paid or minus
any cash received, (3) carrying amount of asset given up plus cash paid or minus
any cash received
 No commercial substance – Carrying amount of asset given up plus cash paid or
minus any cash received.

 Acquisition through Non-Exchange Transactions – asset received is measured at fair value

at acquisition date.
 No condition – recognized immediately as income
 With condition – initially recognized as liability, subsequently recognized as income
when condition is met

 Acquisition through Intra-agency or Inter-agency Transfers – measured at the carrying

amount of the asset received

Subsequent expenditures on recognized ppe

a. Repairs and Maintenance:

 Minor repairs – expensed
 Major repairs – capitalized
 If not clear, treat as minor repairs – expensed
 b. Replacement Costs – charge carrying amount of old part as loss; capitalized new part.
 If carrying amount of old part is not determinable, use the cost of new part as basis.

c. Spare Pars and Servicing Equipment:

 Minor – expensed
 Major – capitalized
 Those that can only be used in conjunction with an item of PPE are accounted for as
PPE.

d. Betterments – are capitalized (if they meet the recognition criteria for PPE) and are
subsequently depreciated: (1) over the extended useful life, if betterment extends useful life,
or (2) over remaining useful life, if betterment does not extend useful life

e. Additions – are modifications which increase the physical size or function of the PPE. If the
addition is a (an):
 New unit – depreciate over its own useful life
 Expansion – depreciate over useful life of original asset

Subsequent measurement

 PPE are subsequently measured using the cost model. The revaluation model is not
applicable to government entities.
 The straight line method of depreciation is used unless another method is more appropriate.
 Residual value is generally 5% of cost.

Computation of value in use (viu)

a. Depreciated Replacement Cost Approach

 VIU = Replacement cost less Accumulated depreciation based on the replacement cost

b. Restoration Cost Approach

 VIU = Depreciated replacement cost minus Estimated restoration cost

c. Service Units Approach

 VIU = Depreciated replacement cost x (100% less % of reduction in service potential)

Heritage asset Not depreciated but subject to impairment

Infrastructure assets
Reforestation projects
Idle PPE
Fully depreciated
Unserviceable property
Lost PPE
Generally, no residual value
Land improvement; not depreciated but subject to impairment
Not derecognized; continued to be depreciated
Not derecognized
Derecognized
Derecognized (if total loss)

Borrowing costs

 National Government (recorded by BTr) – expensed (i.e., Benchmark Treatment)

 Government Agencies – capitalized (i.e., Allowed Alternative Treatment)

REFERENCES:
 Government Accounting & Accounting for Non-Profit Organization (2018). Millan, Z.V. Baguio City:
Bandolin Enterprise