INTACC2 REVIEWER

Property, Plant & Equipment (PAS 16) Acquisition on a cash basis

• tangible assets Cost = cash price equivalent + directly attributable cost
• used in production or supply of goods or services Acquisition on a Lump-sum or Basket Price (single cost)
• rental, administrative purposes
• used for more than 1 period
Major Characteristics Fair value Fraction Allocated Cost
a. tangible assets Land xx x/x xx
b. used in business Building xx x/x xx
xx xx
c. Used for more than 1 year
Recognition of PPE
Journal entry:
• probable that future economic benefits will flow
PPE xx
• cost of asset can be measured reliably
Cash xx
Spare parts & servicing equipment
• usually carried as "inventory"
Acquisition on Account
• "expense" when consumed Cost= Invoice Price - Discount (regardless if taken or not)
• Major spare parts and stand-by equipment qualify as PPE when used *Cash discounts are generally considered as reduction of cost.
for more than one period Journal entries (Gross Method):
Measurement at INITIAL RECOGNITION 1. To record the acquisition
• measured initially at "cost" Equipment xx
Cost- amount of cash or cash equivalent paid & the fair value to Cash/Accounts Payable xx
acquire an asset at time of acquisition. 2. To record payment WITHIN discount period
Elements of Cost Accounts Payable xx
a. purchase price (including import duties & non refundable purchase Cash xx
tax after deducting trade discounts & rebates) Equipment (% x invoice amt.) xx
b. Directly attributable costs 3. To record payment BEYOND discount period
c. Initial estimate of the cost of dismantling & removing the asset Accounts Payable xx
& restoring the site (@PV) Purchase Discount lost xx
Directly attributable costs (capitalized) Cash xx
cost of employee benefits (directly arising from acquisition of Equipment xx
PPE) Acquisition on Installment Basis
Cost of site preparation Cost = Cash Price
Initial deliv ery & handling cost *excess of installment price over cash price is treated as an INTEREST
Installation & assembly cost EXPENSE to be amortized over the credit period.
Professional fees NO CASH PRICE AVAILABLE
Costs of testing • Asset is recorded at an amount equal to the present value of all
Proceeds from Samples payments using an implied interest rate.
• proceeds from selling samples produced & the cost of such samples
when testing shall be included in the "profit or loss" (PAS 16) Down payment xx
• "proceeds" are no longer deducted from the cost of the asset.(If not PV of NP (amount paid per period x PV) xx
yet sold, accounted for as "inventory")
Costs not qualifying for recognition (expensed outright) Total Cost of Machinery xx
Cost of opening new facility
Cost of introducing a new product or service
Cost of conducting a business in a new location, w/ new class of Note Payable (face amount) xx
customer (including cost of staff training) PV of NP (amount paid per period x PV) (xx)
Administration & other general overhead costs
Implied Interest xx
Costs incurred while an item capable of operating has yet to be
brought into use or operated at less than full capacity
Initial operating losses Journal Entries:
Costs of relocating or reorganizing an entity's operations 1. To record acquisition
Measurement AFTER RECOGNITION Machinery xx
• shall choose either cost model or revaluation model Disc. on NP xx
• such accounting policy shall be applied to an entire class of PPE. Cash xx
Cost Model Note payable xx
• PPE are carried at cost less any accumulated depreciation & 2. To record first installment
accumulated impairment loss Note Payable xx
Revaluation Model Cash xx
• carried at revalued carrying amount.
Revalued carrying amount = FV @ date of revaluation - acc.
depreciation - acc. impairment loss
3. To amortize the discount on NP Cost = fair value of asset given - cash received (RECIPIENT)
Interest expense xx
Discount on Note Payable xx FV of asset given xx
*Disc. on NP = PV of NP x Implied interest rate Less: Cash received xx
Cost of new asset xx
Issuance of Share Capital
Cost = FV of consideration received (accdg. to GAAP) FV of asset given xx
Order of priority if acquired through issuance of SC: Less: Carrying Amount xx
Gain/Loss on exchange xx
1. FV of property received
2. FV of share capital (issued shares x quoted price)
3. Par Value or Stated Value of the share capital Journal Entries:
Journal Entries: 1. Payor
1. FV of land is used Equipment - new xx
Land xx Acc. dep. xx
Share Capital (shares x par value) xx Loss on exchange xx
Share Premium xx Equipment - old xx
2. FV of share capital is used Cash xx
Land (shares x quoted price) xx 2. Recipient
Share Capital (shares x par value) xx Equipment - new xx
Share Premium xx Cash xx
3. Par value of share capital is used Acc. dep xx
Land xx Equipment - old xx
Share Capital (shares x par value) xx Gain on exchange xx
*The measurement of property using FAIR VALUE of the PROPERTY is Exchange - NO COMMERCIAL SUBSTANCE
PREFERABLE. Cost = Carrying amount of asset given
Issuance of Bonds Payable *no gain or loss is recognized
Cost = FV + Directly attributable costs PAYOR:
Order of priority if acquired through issuance of SC: Carrying amount xx
1. FV of bonds payable (quoted price) Add: Cash Payment xx
2. FV of asset received Cost of new asset xx
3. Face amount of bonds payable
Journal Entries:
RECIPIENT:
1. FV of bonds payable
Carrying amount xx
Building xx Less: Cash Received xx
Bonds Payable (Face amount) xx Cost of new asset xx
Premium on Bonds Payable xx
2. FV of asset received Journal Entries:
Building xx 1. Payor
Bonds Payable (Face amount) xx Equipment - new xx
Premium on Bonds Payable xx Acc. dep. xx
3. Face amount of bonds payable Equipment - old xx
Building xx Cash xx
Bonds Payable (Face amount) xx 2. Recipient
*The measurement of property using FAIR VALUE of the BONDS PAYABLE Equipment - new xx
is PREFERABLE. Cash xx
Acc. dep xx
Exchange - WITH COMMERCIAL SUBSTANCE
Equipment - old xx
Cost = fair value of asset given + cash payment (PAYOR)
Trade-in
FV of asset given xx • a form of exchange
Add: Cash payment xx
• Involves a SIGNIFICANT amount of cash;
Cost of new asset xx
• Has commercial substance
FV of asset given xx Order of Priority:
Less: Carrying Amount xx 1. FV of asset given + cash payment
Gain/Loss on exchange xx
2. Trade in value of asset given + cash payment (when FV is not
determinable)
List Price (FV of new equip.) xx
Trade in value of old equip. xx
Cash payment xx
FAIR VALUE / TRADE IN VALUE APPROACH
PAS 16, par. 22
• cost of ABNORMAL AMOUNT in the production of self
FV of asset given xx constructed asset is NOT INCLUDED IN THE COST OF ASSET.
Add: Cash payment xx
Cost of new asset xx INTERVENING / INCIDENTAL OPERATIONS
• unnecessary to bring an asset to the location & condition for
FV of asset given xx intended use, the INCOME & RELATED EXPENSES are recognized
Less: Carrying Amount xx
in PROFIT or LOSS.
Gain/Loss on exchange xx
DERECOGNITION
• Cost of PPE & related accumulated depreciation shall be
Journal Entry:
REMOVED FROM THE ACCOUNTS.
Equipment - new xx
Acc. Dep. xx
PAS 16, par. 67
• the CARRYING AMOUNT of item of PPE shall be DERECOGNIZED
Equipment - old xx
on disposal or when no future economic benefits are expected
Cash xx
from use or disposal.
Gain on Exchange xx
*when list price is often bloated to increase trade in value, the CASH GAIN OR LOSS from Derecognition
PRICE OF NEW ASSET is believed to be the FAIR VALUE. • shall be included in the PROFIT or LOSS
• GAIN / LOSS = Net disposal proceeds & CA of item
Donation
• IFRS does not address donation or contribution Fully Depreciated Property
• Contributions received from shareholders: • CA = 0 (zero) or CA = RV
Contribution xx • Asset acc. & related accumulated dep. acc. closed & residual
Donated Capital xx value is set up in a separate acc.
• EXPENSES incurred shall be charged to DONATED CAPITAL ; expenses • Cost of FULLY DEPRECIATED ASSET REMAINING IN SERVICE &
do not increase or enhance value of asset. related accumulated dep. shall NOT BE REMOVED from the
• DACs (installation & testing costs) shall be CAPITALIZED. accounts.
Donation from NON-SHAREHOLDERS *Entities are ENCOURAGED but not required to disclose fully
• gifts, grants, other assets that are RESTRICTED for PPE are depreciated property .
recognized as a LIABILITY Property classified as HELD FOR SALE
• when UNRESTRICTED, recognized as INCOME. • an asset is available for immediate sale in present condition
SELF-CONSTRUCTED ASSETS WITHIN ONE YEAR from date of classification. (PFRS 5, par. 7)
• Cost of self constructed assets include: • EXCLUDED from PPE, but presented as CURRENT ASSET.
a. Direct cost of materials • NON-CURRENT ASSET classified as held for sale at the LOWER
b. Direct cost of labor BETWEEN CA & FV LESS COST OF DISPOSAL. (PFRS 5, par. 15)
c. Indirect cost & incremental overhead *Writedown to FV less Cost of disposal = impairment loss
*Non-current asset classified as held for sale shall NOT BE
Constructed Asset Finished Goods TOTAL DEPRECIATED.
Materials xx xx xx Idle or Abandoned Property
Labor xx xx xx • NOT classified as held for sale
Manufacturing OH xx xx xx • CA would be recovered principally THROUGH CONTINUING USE.
xx xx xx
Temporary Idle activity or abandonment
• DOES NOT PRELUDE depreciating asset.
*if incremental overhead is unidentifiable, allocation may be done on the
• future benefits are not only consumed through usage, but
basis of DIRECT LABOR / DIRECT LABOR HOURS.
through wear & tear and obsolescence as well.
• Non-current asset to be abandoned includes an item of PPE that
is used until END OF THE ECONOMIC LIFE.
Direct Labor Fraction Overhead
Constructed asset xx xx xx Optional Disclosures
Finished goods xx xx xx a. CA of temporary idle PPE.
xx xx xx b. Gross CA of any fully depreciated PPE still in use.
c. CA of PPE retired & held for sale.
d. When COST MODEL is used, FV of PPE when this is MATERIALLY
SAVING OR LOSS ON CONSTRUCTION
DIFFERENT from CA.
• Actual cost of construction < Purchase price of constructed asset
= SAVING
• Saving is realized in future periods by LOWER DEPRECIATION
CHARGES
• ANY INTERNAL PROFIT shall be ELIMINATED.
• Actual cost of construction > Purchase price of constructed asset
= constructed asset will be recorded AT COST.
• If actual cost is MATERIALLY EXCESSIVE due to construction
inefficiencies or failures, EXCESS = LOSS CHARGEABLE TO
MANAGEMENT
*Future periods shall not be burdened w/ management inefficiencies or
errors.
LAND & BUILDING

Land Account
• used as PLANT SITE = PPE
• currently UNDETERMINED USE = INVESTMENT PROPERTY
• held for LONG-TERM CAPITAL APPRECIATION = INVESTMENT PROPERTY
• held DEFINITELY as FUTURE PLANT SITE = PPE (OWNER-OCCUPIED PROPERTY)
• held for CURRENT SALE by a real estate developer = PART OF INVENTORY

Costs Chargeable to LAND (page 750)

Land Improvements (subject to depreciation)

• land improvements NOT SUBJECT TO DEPRECIATION is charged to LAND ACC.
• depreciated over its useful life
• landscaping (sidewalks, drainage systems, permanent fence)
• expenditures OCCASIONALLY INCURRED/MADE.

Special Assessments
• part of the cost of land (capitalized), increases value of land
Real property taxes
• capitalized as cost of land when ASSUMED by the buyer, but only up to DATE OF
ACQUISITION.

Building Account
• costs include when acquired for purchase & acquired by means of construction (page
752]
• When part of the blueprint (permanent) = COST OF BUILDING
• Insurance taken DURING CONSTRUCTION = COST OF BUILDING (otherwise, expensed
outright due to negligence)
• Immovable/permanent fixtures = COST OF BUILDING (movable fixtures are
depreciated over their useful life & charged to F&F)
• Ventilating & lighting systems, elevators installed DURING CONSTRUCTION = COST
OF BUILDING (otherwise, charged to building improvements & depreciated over UL or
RL— whichever is shorter)

PIC INTERPRETATION ON LAND & BUILDING

a.) LAND & OLD BUILDING purchased @ SINGLE COST
- If OB is usable,single cost is ALLOCATED TO L & B based on relative FV.
- If OB is unusable, allocate SC to LAND ONLY
b.) OB is demolished immediately for CONSTRUCTION OF NEW BUILDING
- Allocated CA of USABLE OB = LOSS (if NB is accounted for PPE/INV. PROPERTY)
- DEMOLITION COST LESS SALVAGE VALUE = CAPITALIZED AS COST OF “NEW
BUILDING”
- If OB is demolished to prepare land for intended use (not construction) = COST OF
LAND
c.) Building acquired & used in a PRIOR PERIOD but DEMOLISHED FOR CONSTRUCTION OF
NB
- CA of USABLE OB = LOSS (if NB is accounted for PPE/INV. PROPERTY)
- Net demolition cost = CAPITALIZED as COST OF NB
- If OB is SUBJECT TO A CONTRACT OF LEASE, payments to induce tenants to
VACATE from OB = COST OF NEW BUILDING

Machinery
-