PROPERTY, PLANT, AND EQUIPMENT

Property, Plant, and Equipment – tangible assets used in business for more than one year
A. Recognition
➥ Probable that a future economic benefit will flow to the entity
➥ Cost can be measured reliably
B. Measurement
➥ Initial Measurement - @ cost
1. Cash Basis – cash paid plus directly attributable cost
⤷ Lump sum – “basket price” (If you acquire two PPEs, the allocation of cost will be based on their relative
market fair value)
2. On Account – net of invoice price less cash discount (taken or not)
3. Installment Basis
⤷ If the cash price equivalent is available, that would be the initial cost of PPE
(Cash price equivalent – Installment price = Interest)
⤷ If the cash price equivalent is NOT available, the present value on the payments using the implied interest
rate will be the cost of PPE
⤷ Issuance of:
 Share Capital – order of priority
a. FV of asset received
b. FV of shares issued
c. Par Value of shares issued
 Bonds – order of priority
a. FV of bonds
b. FV of asset received
c. Face Amount of the bonds
4. Exchange
⤷ If there’s commercial substance
 Payor – FV of asset given up plus cash payment
 Recipient – FV of asset given up less cash received
⤷ If there’s NO commercial substance
 Payor – CA of asset given up plus cash payment
 Recipient – CA of asset given up less cash received
5. Trade-In – order priority:
⤷ FV of asset given up plus cash payment
⤷ Trade-in value plus cash payment
6. Donation – @ FV
⤷ If shareholder ang nagbigay – credited to “Donated Capital”
⤷ If not shareholder ang nagbigay – credited to “Liability/Income”
7. Construction of PPE – (Direct material + Direct labor + Overhead)

➥ Subsequent Measurement
⤷ Revaluation Model – revalued amount less accumulated depreciation less impairment loss
⤷ Cost Model – net of cost less accumulated depreciation less impairment loss

C. Derecognition – removal from Statement of Financial Position

➥ Disposal – held for sale (current asset), no longer depreciated, and its measurement whichever is lower of CA and
FV less cost of disposal.
➥ No future economic benefit from the use or disposal
D. Fully Depreciated – if the value of the PPE is equal to its residual value or “0”
⤷ If not used – remove form PPE account as well as the related accumulated depreciation
⤷ If used – retain in PPE and accumulated depreciation account
⤷ Idle/Abandoned – according to PFRS 5, it can’t be classified as held for sale if it is abandoned
 GOVERNMENT GRANT

Government Grant (PAS 20 par. 3) – assistance by the government in return for future compliance on certain conditions
A. Recognition
➥ Entity will comply with conditions attaching to the grant
➥ Grant will be received
B. Measurement – @ FV
C. Classification/Presentation
➥ Related to assets – subsidy provided by the gov’t in exchange for a purchase or acquisition of a certain long-term
asset
➥ Deferred Income Approach – pagkareceive mo sa grant (Dr. Cash Cr. Deferred Income) magsstay siya sa
pagiging liability hanggat dimo nafufulfill yung conditions
➥ Asset Approach – (Dr. Cash Cr. Related Asset) the gov’t grant will be a deduction to the related asset
➥ Related to income – residual definition
➥ Other income
➥ Deducted from the related expense
D. Accounting
➥ It will become an income over the period pf the related expense or when cost is incurred
E. Repayment
➥ Related to assets (check what approach you used)
⤷ Deferred income approach – i-check muna yung grant na babalik sa gov’t to any unamortized deferred
income and the remaining will be allocated as loss or expense for the entity
⤷ Asset approach – it will increase the CA of the asset and the related depreciation
➥ Related to income – residual definition
⤷ Any unamortized deferred income will be allocated as an expense for the entity
F. Interest Free Loans
➥ Grant – the difference between the Face Amount and the PV of the loan

BORROWING COSTS

Borrowing Cost – interest and other costs in connection with the borrowing of funds
A. Accounting
➥ Capitalized – if it is qualifying asset related (Qualifying Asset – an asset that needs substantial period for its
intended use or sale)
➥ Expense – if not related to qualifying asset
B. Commencement - start of capitalizing Borrowing Cost
➥ Entity incurs expenditures for the asset
➥ Entity incurs borrowing cost
➥ Entity undertakes actions that are necessary to prepare the asset or its intended use or sale
C. Suspension
➥ Active development has been interrupted
D. Cessation – fully stop the capitalization of Borrowing Cost
➥ All activities in preparing the asset for its purpose are complete
E. Classification
➥ Specific Borrowings – if the borrowed fund is specifically intended for SPECIFIC purpose (Total borrowed funds x
related rate, that will be the Actual Borrowing Cost less Income on Investment)
➥ General Borrowings – if the borrowed fund is used for GENERAL purposes (Average Carrying Amount x
Capitalization Rate/Average Rate), whichever is lower between the computed Borrowing cost and the total
interest expense will be capitalized *to get the Capitalization Rate, total interest expense divide it by general
borrowing
➥ Mixed – (Total cost - Specific Borrowings = General Borrowings)
F. Specific Borrowing Used For General Borrowing
➥ Classified as General Borrowing following its normal computation
*Capitalizable ang interest if related sa qualifying asset
 LAND, BUILDING, AND MACHINERY (CAPITAL AND REVENUE EXPENDITURES)
1. Land – purchase price plus any directly attributable cost
➥ Generally, they are classified as PPE
➥ Exceptions:
⮿ Held for undetermined use & Capital appreciation – “Investment”
⮿ Current sale – “Inventory”
A. Land Improvement
⤷ If not depreciable: capitalized as cost of land
⤷ If depreciable: capitalized as separate account. Depreciated w/ its useful life
B. Real Property Taxes
⤷ Generally, they are treated as an outright expense
⤷ Assumed by the buyer – capitalizable (If may taxes na hindi nabayaran ni seller ONLY until the date of
acquisition)
2. Building
➥ If purchased, purchase price plus any directly attributable cost
➥ If constructed, direct material plus direct labor plus overhead plus any directly attributable costs related to the
construction of the building
A. Sidewalks/Pavements/Parking Lots/Driveways
⤷ Part of blueprint – included as part of the building
⤷ Not part of the blueprint – considered as land improvement and they will be depreciated whichever is shorter
between the life of the building and the improvement
B. Building Fixtures
⤷ If immovable, once na tinanggal mo sila ay makakasira sa part ng building, considered it as part of the
building
⤷ If movable, will be considered as furniture & fixtures
C. Ventilating & Lighting Systems/Elevators
⤷ If installed during the construction, they will be considered as part of the building
⤷ If NOT installed during the construction, considered as building improvement and they will be depreciated
whichever is shorter between the life of the building and the improvement

3. PCI Interpretation on Land and Building

➥ Land and Old Building purchased @ a Single Cost
⦿ Usable – allocate the single cost to the land and old building using their relative fair market value
⤷ Demolished old building immediately for the construction of a new building
⤳ New Building (PPE/Investment) – the allocated cost to the building will be allocated as loss =CA
⤳ New Building (Inventory) – the allocated cost to the building will be capitalized as cost of the NEW
building (Meaning, the Demolition Cost will be directly attributable to the cost of the building less any
Salvage/Scrap Value)
⤳ If you demolished the old building and don’t know yet the use of the land, the cost will be directly
attributable to the land
⦿ Not usable – no need to allocate the cost, the single cost will be accounted to land
➥ Building is Acquired and Used in Prior Period but Demolished in Current Period for the Construction of
New Building
⤷ The CA of the old building will be attributable as loss
⤷ Net demolition cost will be capitalizable as part of the building
⤷ Previously subject to lease – any payment to the tenants to vacate the building is capitalizable as part of the
building
4. Machinery – purchase price plus any directly attributable cost
5. Equipment – purchase price plus any directly attributable cost
6. Returnable Container
⤷ Big units/Great bulk – PPE
⤷ Small units/Individual – other non-current assets
7. Subsequent Costs – these are costs incurred by the entity to maintain or improve a certain PPE after acquisition
A. Recognition
➥ Probable that the future economic benefit will flow to the entity (If no future economic benefit – outright
expense)
⤷ Extends the life of the PPE
⤷ Increase the capacity
⤷ Improves the efficiency and safety
➥ Cost is measured reliably
B. Types
➥ Addition – modification that may increase the capacity of that asset e.g addition of parts (capitalizable)
➥ Improvement/Betterment
➥ Replacements – generally considered as expense except when it is a MAJOR REPLACEMENT
➥ Repairs – generally considered as expense
⤷ Ordinary Repairs – outright expense (e.g pinalitan mo lang yung tornilyo or gulong)
⤷ Extraordinary Repairs – capitalizable (like binago mo lahat sa kotse)
⤳ Rearrangement Costs – outright expense

DEPRECIATION

1. Depreciation – systematic allocation of depreciable amount over the useful life of an asset
A. Kinds
➥ Physical Depreciation – makikita sa physical aspect ng PPE (e.g cracks, rust)
➥ Functional/Economical Depreciation – more on inadequacy, supersession, and obsolescence
B. Composition
➥ Depreciable amount = “Cost less residual value”
➥ Residual value – estimated value of the asset at the end of its useful life
➥ Useful life – estimated period wherein the asset will be available in use for the entity
➥ Forms (aside from hours, months, years)
⤳ Time
⤳ Units
⤳ Service hours
➥ Factors
⤳ Expected usage – gaano karaming output ang kaya niyang i-accomodate
⤳ Expected wear and tear – hanggat kalian pwedeng gamitin kahit may mga repairs and maintenance
⤳ Technical or commercial obsolescence – gaano katagal kung hindi siya papalitan
⤳ Legal limits – prohibits by law on certain of time
C. Methods
➥ Equal/Uniform
⤷ Straight line method
⤳ Depreciable amount/useful life
⤳ Depreciable amount*depreciable rate (1/L)
⤷ Composite Method (dissimilar assets) &Group Method (similar assets)
⤳ Composite rate/Group rate = total annual depreciation divided by total cost
⤳ Total cost x Composite/Group rate = depreciation expense
➥ Variable charge/Usage/Activity Methods – the basis of this is that yung PPE or asset is lagi mong ginagamit
⤷ Working hours/Service hours & Output production
⤳ Depreciable rate = depreciable amount divided by useful life (service hours or units of output)
⤳ Depreciable rate x Actual service hour or units of output = depreciation expense
➥ Decreasing or Accelerating Method – the logic of this is that if the asset is new, mas marami siyang
magagawa or mapoproduce
 ⤷ SYM (Sum of the Digit Years)
⤳ SYD = life [(life+1)/2]
⤳ Depreciable amount x diminishing life / SYD
⤷ Declining Balance
⤳ Double declining & 150% declining
⤳ Declining rate = (1/L) x 2 or 1.5
⤳ Depreciation rate x cost/CA
➥ Other Methods
⤷ Inventory = Beg. Inventory less End, inventory
⤷ Retirement – it will only have a depreciation expense once the asset is already retired which is equal to
the total cost of the asset
⤷ Replacement – hanggat di nireretire yung asset, walang depreciation expense

2. Change in Useful Life & Methods – residual value of a particular asset should be reviewed at each reporting date.
Any changes for the residual value, useful life, and depreciation method shall be accounted in accounting estimate –
PROSPECTIVELY.

DEPLETION

1. Wasting Asset – natural resources physically consumed and are irreplaceable

A. Cost – it will be the basis of the depletion
➥ Acquisition cost – price paid by the entity in acquiring a certain property (e.g may nakita kang certain property
sa Batangas na sinasabing that contains mineral resources)
➥ Exploration cost – cost incurred by the entity to extract or verify whether there is natural resources on that
property
⤷ Successful Method – ONLY the successful cost is capitalizable
⤷ Full Cost Method – kahit di successful, magiging part pa rin siya ng exploration cost that will be
capitalizable
➥ Development cost – costs incurred by the entity to develop the natural resources extracted to that property
⤷ Intangible development – capitalizable as cost of wasting asset
⤷ Tangible development – NOT capiltalized as cost of wasting asset but rather a separate account will be
set up
⤳ If the life of the tangible equipment is shorter than the life of the wasting asset, STRAIGHT LINE
will be use
⤳ If the life of the wasting asset is shorter than the life of the tangible equipment, OUTPUT METHOD
will be use
➥ Restoration cost – (e.g estimated cost of dismantling)
⤷ If may usapan kayo ng may-ari ng property about restoration at its original condition, it will be
CAPITALIZED
⤷ If wala kayong usapan ng may-ari ng property about restoration on that property (like kapag pinipilit ka), it
will be NOT be CAPITALIZED

2. Depletion – systematic allocation of depletable amount over the period the natural resources are extracted. It will be
the Cost of a Wasting Asset less Land Value (Residual value)
A. Method
➥ Output method – identify first the depletable rate (depletable amount/estimated resources to be extracted).
Then multiply it to the actual natural resources extracted. That will be the depletion for the period
➥ Straight line method
Maximum Dividend for Wasting Asset
Retained Earnings xx
Accumulated Depletion xx
TOTAL xx
Capital Liquidated Amount (xx)
Unrealized Depletion in EI (xx)
Maximum Dividend xx

REVALUATION
1. Revalued Amount – (Revalued Amount – Accumulated Depreciation – Impairment Loss)
➥ Fair Value
➥ Depreciated Replacement Cost/Sound Value – (Replacement cost less Accumulated depreciation) The
replacement cost is the CURRENT purchase price
➥ Revaluation Surplus/Net Appreciation/Revaluation Increase
⤷ Revalued amount less CA of the asset
⤷ (Replacement cost – Historical cost)- (AD, Cost- AD, Revalued Amount)

2. Recording of Revaluation
➥ Proportional Method – we will reflect the increase in asset, increase in depreciation and the corresponding
revaluation surplus (Dr. Asset, Cr. Accumulated Depreciation Cr. Revaluation surplus)
➥ Elimination Method – eliminate the accumulated depreciated against the related asset, then reflect the increase
in value of asset or revaluation surplus

3. Presentation
➥ Initial – OCI
➥ Subsequent – piece meal realization to Retained Earnings
➥ Reversal
⤷ Remaining revaluation surplus
⤷ Loss on revaluation (remaining)
➥ Sale of revalued asset
⤷ Gain/Loss – (Selling price less CA)
⤷ Remaining revaluation surplus – Retained Earnings