Plant, Property and Equipment - PPE
Closing Costs – Titling costs,
(PAS 16)
PPEs are:
1. Tangible Assets
2. Used in Business
3. Long-term in Nature
Recognition
1. Probable that future economic benefits
will flow to the entity.
2. Cost of the item can be measured
reliably.
a. Spare parts, standby equipment
and servicing equipment.
(Classified as PPE if the meet
the definition of PPE).
b. Safety and Environmental
Equipment (Mandatory).
Initial Measurement - @ Cost
1. Purchase price, including import duties,
nonrefundable purchase taxes, less
trade discounts and rebates.
2. Direct cost of bringing the asset to the
location and condition for it to be used
in the manner intended
management.
3. Initial estimate of dismantlement,
removal & site restoration costs for
which the entity incurs ad obligation by
acquiring or using the asset other than
to produce inventories.
Cessation of Capitalization of Cost
Location & condition capable of
operating in the manner intended by
management
Measurement of Cost
1. Cash Price Equivalent
2. Deferred
a. Difference between CPE and
the total Payment recognized as
interest over the credit period.
b. If there’s no CPE
i. Cost = PV of note + DP
Classes of PPE
1. Land – should be “owner-occupied”
a. Purchase Price + Broker’s
Commissions
b.
attorney’s fees and recording
fees
c. Cost incurred in getting the land
in the condition for its intended
use – surveying, grading, filling,
draining and clearing
d. Unpaid taxes PRIOR to date of
acquisition “assumed”
e. Liens, mortgages or
encumbrances
f. Special assessment
government-maintained
improvements – pavements,
street lights, sewers and
drainage system
g. Option paid to acquire land.
Note: item not acquired is
expensed
h. Cost incurred to induce tenants
to vacate and relocation &
reconstructing property of
others
i. Restoration costs
by j. Any additional land
improvements – indefinite
useful life
i. Enhancements to the
land: driveways, walks,
fences, parking lots,
drainages & water
systems.
2. Building (Plant) – should be “owner-
occupied”, used to sell goods and
administrative purpose.
3. Equipment
4. Bearer Plants
Lump-sum Purchase of Items of PPE
- Allocated using RELATIVE FAIR VALUES
– accounted for separately
- Reasons:
o Non-depreciable and
Depreciable assets.
o Useful life differs from one
another.
Land & Building acquired at Lump-sum Price Application
To record the exchange
Case Approach Payor Payee
1. Demolishes the Relative Fair Value 1. With FV of AGU
Building in the
FV of AGU xx FV of AGU xx
future
Cash Paid xx Cash Received (xx)
2. Demolishes the Relative Fair Value
building right Cost of Asset xx Cost of Asset xx
away
3. Building Fair Value to Land New PPE xx New PPE xx
deemed AD - Old PPE xx Cash xx
useless Old PPE xx AD xx
4. Self- Cash xx Loss on Ex. xx
constructed: Gain on Ex. xx Gain on Sale xx
 No Component Fair Value to Land 2. FV of AGU - Indeterminable
of Building
 New Building Accounted for Separately Use Priority 2 and 3 - JE's the same with (1)
5. Demolition of Relative Fair Value; CA of 3. No commercial Substance
Old Building for old building is treated as a
CA of AR xx CA of AR xx
New Building loss
6. Clear Land - Inventory - CA of old Cash Paid xx Cash Received (xx)
Future Sale: building Capitalized Asset - New xx Asset - New xx
 Enhances Demolition Cost = Note: Same Journal Entries; No gain or loss to be
future Capitalized recognize.
economic
benefits 2. Acquisition Through Trade-in
 Decision to Demolition cost = Cost to Order of Priority
demolish Sell FV of Asset Given up + Cash Paid
occurs prior to FV of Asset Received (Cash Price w/o trade in)
classification
as HFS Application
To record the trade-in
Other Acquisition Methods
FV of AGU xx
1. Acquisition Through Exchange
Cash Paid xx
Order of Priority Cost of Asset (New PPE) xx
1. FV of Asset Given up + Cash Paid - Cash
Received
New PPE xx
2. FV of Asset Received
3. CA of Asset Given up + Cash Paid - Cash AD xx
Received Loss on Trade-in xx
Note: Lacks commercial substance: Use 3rd Priority Old PPE xx
Cash xx
Gain on Trade-in xx

3. Acquisition Through Issuance of Bonds Payable

Order of Priority
1. FV of Asset Received
2. FV of Bonds Payable Issued
 CPE of Asset at Recognition Date
 PV of Financial Instrument
Accounted for as Follows
1. Income - Donor (unrelated party)
2. Donated Capital - Donor (Shareholder)
3. Gov't Grant - in Accordance with PAS 20

Application

w/ Fair Value
Application
Land (FV) xx From Unrelated Party
PPE xx
Discount on Bonds (FA - FV) xx
Cash (Cost Incurred) xx
Bonds Payable (FA of Bonds) xx Income from Donation xx
From Shareholders
FV - Indeterminable
PPE xx
New PPE (PV of BP) xx Cash (Cost Incurred) xx
Share Premium - DC (excess) xx
Discount on Bonds xx

Bonds Payable (FA of Bonds) xx SUMMARY OF ACCOUTING MODELS

4. Acquisition Through Issuance of Own Equity Cost Revaluation

Instrument Model Model
Initial Historical Historical Cost
Accounted for under PRFS 2: Share-based Payments
Measurement Cost
Order of Priority
Sound Value or
FV of Asset Received Fair Value or
FV of Equity Instrument Issued Cost Less Depreciated
Par Value of Shares Issued Accumul Replacement
Subsequent
ated Cost less
Application Measurement
Deprecia subsequent
Asset - FV: Determinable tion depreciation
less subsequent
Land (FV of Asset) xx impairment loss
Depreciation
Share Capital (# shrs. X par) xx
Expense P/L P/L
Share Premium (excess) xx Impairment
Asset - FV: Indeterminable Loss P/L P/L

Land (FV of Shares) xx Revaluation OCI - w/o

Surplus N/A reclassification
Share Capital (# shrs. X par) xx

Share Premium (excess) xx

5. Acquisition by Donation
Measured @ FV
 3. Double DDR 150% DDR
Deciling 2 1.5
Balance - ¿ ¿
LIFE LIFE
Fixed
Rate, Rate x CA balance
Ignores
RV, and
RV is
Subsequent Measurement considere
COST MODEL d if RV >
Cost less accumulated depreciation less CA
accumulated impairment loss Depreciation method based on Actual
Physical Use
Depreciation – Systematic allocation of the 4. Unit of
depreciable amount of an asset over its useful Productio Depreciable Amount
DR ¿
life. n- Units of Output
1. Depreciable Amount – cost of an asset Estimated
2. Residual Value – the estimate Productio
3. d amount that an entity would currently n
obtain from disposal Capability
4. Useful life
a. Expected usage of the asset
b. Expected wear and tear *CAPITALIZATION POLICY
c. Obsolescence 1. Composite Method
d. Legal and Similar Limitation 2. Group Method
3. Retirement Method
Depreciation Methods 4. Replacement Method
5. Inventory Method
Depreciation Based on Time
1. *LEASEHOLD IMPROVEMENTS
Straight- Annual Depreciation - Modifications made by tenant/s to a property
Line Cost−RV leased under operating lease
Method -
¿ Immovable – recognize
UL
evenly Movable – not recognize
over Journal Entry:
useful life Leasehold Improvement xx
Accelerated Method - depreciation Cash xx
decreases over the useful life Depreciation Expense xx
2. Sum of Accum Dep – Leasehold xx
Life+1
Years SYD Denominator = Life x *note: Lower of useful life and
2 remaining lease term
Digits Fraction x Depreciable
(SYD) - *if INTERGRAL PART of the leased property –
Amount : Fraction(Remaining
series of INTANGIBLE ASSET (Right of Use)
Life / SYD Denom)
fractions
to the Changes in Depreciation Method
depreciab - Change in Accounting Estimate –
le amount Prospective Application
- Procedures
 1. Determine the CA as at the b. Future repairs – prohibited
beginning of the Period
2. Depreciate the CA taking into REVALUATION MODEL
account any changes in Accounting for Revaluation of PPE
depreciation method, useful life, or
residual value 1. Increase in FV
Idle, temporarily taken out of use, and a. Recognized in OCI – Revaluation
abandoned properties. Surplus
1. Ceases when derecognized 2. Decrease in FV
2. Depreciated until the end of useful life a. Recognized in P/L – Loss on
3. PFRS 5 defines assets abandoned as: change in FV
a. Assets that are to be used to Fair Value xx
the end of their economic life Less: CA (prev. FV) xx
b. Assets that are to be closed xx/
rather than sold RS/(Loss on change in FV) (xx)
4. Depreciation Ceases
a. Disposed or Sold
b. Classified as “Held for Sale”
c. Fully Depreciation; CA = 0/RV
d. Not used in Production & the
depreciation method is based
on usage.

*Capital Expenditures – Subsequent Costs

1. An extension in the life of the assets
2. Increase asset’s capacity of efficiency beyond
its normal capacity
cost incurred to return capacity or
efficiency to its original is expensed
immediately.
**Replacement Costs and Major Inspections –
Capitalize only if management can clearly
demonstrate that the subsequent expenditures
qualify under the recognition criteria.
**Major types of subsequent
costs/expenditures
1. Additions
2. Improvement (Betterments)
3. Replacement of Major parts
4. Major Inspections
**Rearrangement and Reinstallation – Expense
and Capitalize (if asset recognition is satisfied)
**Repairs
1. Expense
2. Minor Repairs – Expense
3. Major Repairs
a. Capitalized if the benefits are
for several periods