PROPERTY, PLANT AND

EQUIPMENT (PPE)
Valix, C. T. et al. Intermediate Accounting
Volume 1.
(2019). Manila: GIC Enterprises & Co.; Inc.
DEFINITION
• PPE are tangible assets that are held for
use in production or supply of goods or
services, for rental to others, or for
administrative purposes, and are expected
to be used during more than one period.
EXAMPLES OF PPE
• Land • Motor vehicle
• Land • Furniture and Fixtures
improvements • Office equipment
• Building • Patterns, molds and dies
• Machinery • Tools
• Bearer plants
• Ship
• Aircraft
 RECOGNITION
• Probable that future economic will flow to the
entity
• Cost of asset can be reliably measured
 SPARE PARTS AND SERVICING
EQUIPMENT
• Carried as Inventory and expensed when
consumed.
• Major spare parts and stand-by equipment
qualify as PPE when expected to be used for
more than one period.
 INITIAL MEASUREMENT
• PPE shall be measured at COST.
• Elements of cost:
• Purchase price + import duties +
nonrefundable purchase taxes (after deducting
trade discounts and rebates)
• Cost directly attributable to bringing the asset
to its location and intended condition
• Initial estimate of the cost of dismantling and
removing the item
 DIRECTLY ATTRIBUTABLE COSTS
• Employee benefits directly from acquisition of PPE
• Site preparation
• Initial delivery and handling cost
• Installation and assembly cost
• Professional fees
• Costs of testing whether the asset is properly
functioning
 COSTS EXPENSED & NOT INCLUDED IN PPE COST
• Opening a new facility
• Introducing a new product or service, including costs of
ads and promo
• Conducting business in a new location, or with new
customers, and staff training
• Administrative and other general overhead costs
• Costs incurred to enable the item to be on full capacity
• Initial operating losses
• Relocating or reorganizing
 SUBSEQUENT MEASUREMENT
• Entity shall choose either
COST MODEL or REVALUATION MODEL

REVALUATION = FV AT
COST = ACQ COST
THE REVALUATION
– ACCUM.
DATE – SUBSEQUENT
DEPRECIATION
ACCUM. DEPCN. AND
– ACCUM. IMPAIRMENT
SUBS. ACCUM.
LOSS
IMPAIRMENT LOSS
ACQUISITION OF PPE
• CASH BASIS
• ON ACCOUNT SUBJECT TO CASH DISCOUNT
• INSTALLMENT BASIS
• ISSUANCE OF SHARE CAPITAL
• ISSUANCE OF BONDS PAYABLE
• EXCHANGE
• DONATION
• GOVERNMENT GRANT
• CONSTRUCTION
 CASH BASIS
• Cash price equivalent at the recognition date.
• Cash paid plus directly attributable costs
• Freight, installation cost, other necessary
costs in bringing the asset to its intended
location and condition
• Basket price – use FV to apportion the price
using the fraction of FVs
 ON ACCOUNT
• Cost is equal to the invoice price minus the
discount, regardless of whether the discount
was taken or not.
• Discount not taken is charged to PD- lost,
presented as other expenses
• Cash discounts are generally considered as
reduction of cost and not income.
 BY INSTALLMENT
• Cost is the Cash price equivalent
• Installment price – Cash price equiv. = Interest
• Interest to be amortized over the credit period
• If no cash price equivalent, use PV of all
payments using an implied interest rate
• EIM is used in amortizing the discount on NP as
interest expense.
 BY ISSUANCE OF SHARE CAPITAL
• When shares are issued for consideration other
than actual cash, the proceeds shall be measured
at the FV of the consideration received.
• When property is acquired through share
issuance, the property shall be measured equal to
the following in the order of priority:
• FV of property received
• FV of the share capital
• Par value or stated value of the share capital
 BY ISSUANCE OF BONDS PAYABLE
• When an entity acquires an asset by issuing
bonds payable, PFRS 9, provides that the entity
shall measure the financial liability at FV plus
direct TC.
• Assets acquired by issuing bonds payable is
measured in the following order:
a. FV of bonds payable
b. FV of asset received
c. Face amount of bonds payable
 BY EXCHANGE
• Cost of an item of PPE acquired in exchange for a
non- monetary asset or a combination of monetary
and non-monetary asset is measured at FV.
• Exchange is recognized at carrying amount unde
the following circumstances:
a)Exchange transaction lacks commercial
substance
b) FV of asset given or the FV of the asset
received is not reliably measured
 BY EXCHANGE – COMMERCIAL
SUBSTANCE
• Cost of property is equal to the following:
a) FV of the asset given plus any cash payment –
on the part of the payor;
b) FV of asset given minus any cash received –
on the part of the recipient.
 BY EXCHANGE – NO COMMERCIAL SUBSTANCE

• PPE measured at the Carrying amount of the

asset given (No gain/loss recognized)
• Any cash involved is added to the carrying
amount on the part of the payor and deducted
from CA on the part of the recipient.
 EXCHANGE - BY TRADE IN
• is a form of exchange
• property is acquired by exchanging another
property as part payment and the balance in
cash or any other form as agreed.
• Trade in usually involves a significant amount of
cash, thus transaction has commercial
substance.
 EXCHANGE - BY TRADE IN
• New asset is recorded at the ff order of priority:
1) FV of asset given plus cash payment
2) Trade in value of asset given plus cash
payment ( in effect, this is the FV of the
asset received )
 DONATION
• Contributions received from shareholders shall
be recorded at the FV with the credit going to
the donated capital
• Expenses incurred in connection with the
donation like registration fees & legal fees are
charged to the donated capital account
• directly attributable costs incurred subsequently
such as installation and testing cost to bring
donated asset to its intended location or
condition shall be capitalized
 DONATION
• Non-shareholders sometimes give gifts or gants
of funds or other assets that are restricted for
PPE additions.
• Capital gifts or grants are generally subsidies
recognized as income
• when capital gifts and grants are not subsidies,
the offsetting credit is a liability account until
the initial restrictions are met, then it is
transferred to income
 CONSTRUCTION
• The cost of self constructed asset is determined
using the same principles as for an acquired asset.
• The cost of self constructed PPE shall include:
1. Direct cost of materials
2. Direct cost of labor
3. Indirect cost and incremental overhead
specifically traceable* to the construction

*if not, allocation may be done on the basis of DL cost or DL hours.

 CONSTRUCTION – SAVING OR LOSS
• Actual Cost of Construction < Purchase Price from
Outside parties, difference is savings.
• Saving is realized in future periods by reason of lower
depreciation.
• Any internal profit is eliminated for the cost of self
constructed asset.
• if opposite of 1st bullet above, the constructed asset
is recorded at actual cost, no loss is recognized.
• If cost is overly excessive excess shall be treated as a
loss chargeable against management (PAS 16)
 CONSTRUCTION – INTERVENING
OPERATIONS
• Example – Construction site used as paid
parking.
• Income and expenses incurred are recognized
in P&L
 DERECOGNITION
• Cost of PPE and the related Accumulated depreciation
shall be removed from the accounts.
• PAS 16 provides that the carrying amount of a PPE shall
be derecognized on disposal or when no future
economic benefits are expected from the use or
disposal.
• Gain or loss from derecognition of PPE shall be part of
P&L
• G/L is the difference between Net disposal proceeds vs.
CA of the item.
 FULLY DEPRECIATED PROPERTY
• When CA is equal to Zero or the CA is equal to
residual value
• Asset and AD accounts are closed and the
residual value is set up in another account
• Fully depreciated asset may still be used and
not removed from the accounts
• Entities are encouraged to disclose the Fully
depreciated assets
 PPE – HELD FOR SALE
• If asset is available for immediate sale in the present
condition within one year from the date of
classification as held for sale
• Excluded from PPE but presented separately as Current
asset.
• PFRS 5 provides that an entity shall measure a Non-
current asset classified as held for sale at the lower of
CA or FV less cost to dispose.
• Writedown is considered as Impairment loss.
• PFRS 5 – Non Current Asset held for sale shall NOT be
depreciated.
 IDLE OR ABANDONED PROPERTY
• CA would be recovered through continuing use
• temporary idle activity does not preclude
depreciating the asset as future benefits are
consumed not only through usage but also
through wear and tear and obsolescence.
 OPTIONAL DISCLOSURES
a)CA of temporarily idle PPE
b) Gross CA of any fully depreciated PPE still in
use
c) CA of PPE retired from active use and
classified as held for sale
d) When Cost Model is used, the FV of PPE when
this is materially different from the CA.