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  • For Machinery and Office Equip

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    Psalm Ruvi Tala
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    Initial Measurement: Property, plant and equipment are initially measured at cost, which includes its purchase price plus any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating. Acquisition on a Cash Basis: If assets are purchased with cash, they are recorded at their cash price. If purchased below cash price due to discounts, the full cash price is recorded with the discount treated as a reduction to the cash paid. Acquisition on Installment Basis: If assets are purchased via installment payments, and the cash price is known, the asset is recorded at the cash price with the difference between the cash and installment prices treated as interest expense over the life of the installments

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    Initial Measurement: Property, plant and equipment are initially measured at cost, which includes its purchase price plus any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating. Acquisition on a Cash Basis: If assets are purchased with cash, they are recorded at their cash price. If purchased below cash price due to discounts, the full cash price is recorded with the discount treated as a reduction to the cash paid. Acquisition on Installment Basis: If assets are purchased via installment payments, and the cash price is known, the asset is recorded at the cash price with the difference between the cash and installment prices treated as interest expense over the life of the installments

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    5 views2 pages

    For Machinery and Office Equip

    Uploaded by

    Psalm Ruvi Tala
    Initial Measurement: Property, plant and equipment are initially measured at cost, which includes its purchase price plus any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating. Acquisition on a Cash Basis: If assets are purchased with cash, they are recorded at their cash price. If purchased below cash price due to discounts, the full cash price is recorded with the discount treated as a reduction to the cash paid. Acquisition on Installment Basis: If assets are purchased via installment payments, and the cash price is known, the asset is recorded at the cash price with the difference between the cash and installment prices treated as interest expense over the life of the installments

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    © All Rights Reserved
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    of 2

    Property, Plant and Equipment

    Initial Measurement: Cost = Cash paid + Direct


    for machinery and office equip.
    Attributable Cost (freight, installation cost, other costs)
    FV FRACTION COST
    (Cash
    paid *
    Acquisition on a Cash Basis
    fraction)
    Illustration Machinery 800k 2/3 1.2M
    Office 400k 1/3 600K
    1. Sonia Company paid cash for machinery, Equip.
    900,000 subject to a 2% cash discount, and TOTAL 1.2M 8M
    freight on machinery, 35,000 Entries:

    Entries: Machinery 1.2M


    Machinery (900,000 * 98% + 35,000) 917,000 Office Equip 600k
    Cash 8M
    Cash 917,000

    2. Sonia Company made the ff individual cash for delivery equip (at cost)
    purchases: entries:
    Land and Building 6M
    Machinery & Office Equip 1.8M
    Delivery Equipment 500k
    Delivery Equip 500K
    Cash 500k
    An appraisal was made, which disclosed the ff FV
    Land 1M
    Building 3M Acquisition on Installment Basis
    Machinery 800k - if an asset is offered at a cash price and at
    Office Equip. 400K an installment price and is purchased at
    Delivery Equipment 350k installment price, the asset shall be
    recorded at the cash price.
    for land and bldg.
    - if an asset is acquired by installment and
    FV FRACTION COST there is no available cash price; the asset is
    (Cash recorded at an amount equal to the present
    paid * value (cash equivalent) of all payments
    fraction)
    using an implied interest rate.
    LAND 1M ¼ 1.5M
    BLDG 3M 3/4 4.5M Illustration
    TOTAL 4M 6M
    Christian Company purchased equipment on
    Entries: Jan. 1, 2020 under the ff terms

    a. 200k downpayment
    Land 1.5M
    b. Five annual payments of 100k, the first
    Bldg 4.5M
    installment note to be paid on Dec 31, 2020
    Cash 6M
    ## The same equipment was available at a cash
    price of 580k. (if acquired cash straight)

    Solving:

    Interest = Installment Price – Cash Price


    Installment price (DP + Annual payments)

    (200k + 5*100k) = 700k

    - Cash price 580k

    Interest = 120k (amortized)


    Date Outstanding Fraction Amortization
    Bal. of Interest
    (Interest *
    fraction)
    1/1/202 500k 500K/1.5M 40k
    0
    1/1/202 400k 400K/1.5M 32k
    1
    1/1/202 300k 300K/1.5M 24k
    2
    1/1/202 200k 200K/1.5M 16k
    3
    1/1/202 100k 100K/1.5M 8k
    4
    1.5M 120K

    entries:

    1/1/2020 Equipment 580k (cash price)


    Discount on NP 120k (balancing fig)

    Cash 200k (dp)

    NP 500k
    annual

    12/31/2020 NP 100k

    Cash 100k

    Interest Expense 40k

    Discount on NP
    40k

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