Methods for the Acquisition of Property

Cash Basis

o measurement: cash paid (purchase price + directly attributable cost, dismantling cost)
o Lump sum for different assets = Allocate at fair value if same AA (Both Assets), LL (Both Liabilities), EE (Both Equities). If
example LE (Liability and Equity) = Residual Method where the liability is measured at fair value, and the excess amount
is for the equity
On Account subject to cash discount
o Payable, with discount to encourage cramp payment
o Measurement: Invoice price – Cash discount (whether taken or not) (net price)
Installment Basis
o Payable on extended period of time (when exceeds discount period)
o Measurement: Cash price equivalent + Interest
o Both the PPE and time is being paid for (Interest)
o If CPE not available: Present value of cash payment (interest methos: time value of money) using implied rate (EIR). If EIR
is not given, use straight line amortization

General rule for the 3 methods below: (1) Fair value of asset given up (2) Fair value of asset received (3) Carrying amount of asset given up

Issuance of Share Capital

o Giving up an Equity
o Measurement: (1) FV of asset received (share is dependent on their contribution) (2) FV of shares issued (3) Par/Stated
value of shares issued (Certificate of Stock – Stated; charter and by-laws – par value)

Issuance of bonds payable

o Giving up a Liability
o Measurement: (1) FV of bonds given up [due and demandable, need to amount to your actual obligation] (2) FV of asset
received (3) Carrying amount/Face value of the bonds given up

Exchange of nonfinancial items

o Giving up Asset in exchange for another
o 2 concepts:
▪ (1) Commercial substance – big effect of exchange, behavior of cash flow will change [Measurement: FV of
asset given up (always given)]
▪ (2) Without Commercial substance – functions of assets are the same, or no value [Measurement: Carrying
amount/cost of asset given up (Automatically no Fair Value)]
o Measurement: (1) FV of asset given up
o Asset is given up, derecognition: possible to have gain or loss (especially for commercial substance)
o Trade In – transaction between dealer and non-dealer (giving up the asset for a better one w extra cash paid) (there is
commercial substance)
▪ Measurement: (1) FV of asset given up + cash paid (2) Trade in Value of asset given up + cash paid (always
present) – dealer decides the amount
Donation
o Measurement: FV of asset received (No asset was given up because a donation is a gratuitous act)
o Debit: Asset at FV, Credit: depends on who donates (If shareholder: Donated Capital/Outsider: Income
o If cost is pertaining to donation by shareholder, deduct donated capital account (if outsider, expensed). If cost not
related to donation but asset, capitalized
Government Grant
o Government assistance, donation in substance (outsider)
o Measurement: FV of asset received
o Credit depends. Government usually asks for condition, if no condition: CREDIT INCOME if condition: CREDIT LIABILITY
if condition fulfilled CREDIT TO INCOME already
Construction
o Same concept as production (raw materials to output)
o Measurement: Add direct costs (Labor, Materials, Overhead)