Property, Plant and Equipment PAS
16
MAJOR CHARACTERISTICS IN THE
DEFINITION OF PPE
a. Tangible assets
u With physical substance
b. Used in business
u Used in production or supply of
goods or services
u For rental purposes*(*meaning,
rental of MOVABLE property)
u For administrative purposes
u Not included in PPE
o Assets (including land) that are
held for sale, or held for
investment
c. Expected to be used over a period of
more than one year
u PPE are classified as noncurrent
assets
EXAMPLES OF PPE
(old term is Fixed Assets)
u Land
u Land improvements
u Building
u Machinery
u Ship
u Aircraft
u Motor vehicle
u Furniture and fixtures
u Office equipment
u Patterns, molds and dies
u Tools
u Bearer plants
PPE does not apply to
u Biological assets related to
agricultural activity*
u Mineral rights and mineral
reserves (oil, natural gas, similar
nonregenerative resources)
*Note : bearer plants are PPE; when
the nature of the business is
agricultural
APPLY PAS 16
PPE used to DEVELOP or MAINTAIN, e.g:
u biological assets, and
u mineral rights and mineral
reserves
PPE INCLUDES
u Costs incurred initially to acquire
or construct an item of PPE
u Costs incurred subsequently to
add to, replace part of, or service
the PPE
SPARE PARTS AND SERVICING
EQUIPMENT
u USUALLY,
o It is carried as inventory and
recognized as expense when
consumed
u MAJOR spare parts and STAND-BY
equipment
o  qualify as PPE when the
company expects to use them
during more than one period.
SAFETY AND ENVIRONMENTAL
EQUIPMENT
u considered as PPE although these
do not directly increase the future
economic benefits of any
particular existing item of PPE
u Example : installation of a new
chemical handling process to
comply with environmental
requirements on the production
and storage of dangerous
chemicals
MEASUREMENT AT RECOGNITION
u AT COST
o Cost  the amount of cash or
cash equivalent paid and the
fair value of the other
consideration given to acquire
an asset at the time of
acquisition or construction
Cash equivalent
paid XX
Add: Fair Value XX
Cost of PPE XX
COST OF PPE INCLUDES
u Purchase price includes:
o import duties,
o nonrefundable purchase taxes,
o AFTER deducting trade
discounts & rebates
u Directly attributable costs (freight,
installation cost and other costs
necessary in bringing the asset to
the location and condition for the
intended use)
 u Initial estimate of the cost of
dismantling and removing the FV at the date of
item, and restoring the site on revaluation XX
which it is located, the obligation Less:
for which an entity incurs Subsequent
(meaning, as required by accumulated depn XX
contract) Subsequent
accumulated
DIRECTLY ATTRIBUTABLE COSTS impairment loss XX (XX)
u Costs of employee benefits arising Measurement after
directly from the construction or recognition XX
acquisition of the item of PPE
u Cost of site preparation WAYS OF ACQUIRING PPE
u Initial delivery and handling cost u Cash basis
u Installation and assembly cost u On account subject to cash
u Professional fees discount
u Costs of testing whether the asset u Installment basis
is functioning properly u Issuance of share capital
u Issuance of bonds payable
Costs not qualified for recognition u Exchange
as PPE u Donation
EXPENSED u Government grant
u Cost of opening a new facility u Construction
u Cost of introducing a new Acquisition on a cash basis
product/service (ads & promo) u Cost = the CASH PRICE
u Cost of conducting business in a EQUIVALENT at the recognition
new location (including staff date.
training) u When several assets are acquired
u Administrative and other general at a basket price or lump sum
overhead costs price, it is necessary to apportion
u Initial operating losses the single price to the assets
u Cost of relocating/reorganizing acquired on the basis of relative
part or all of an entity’s fair value.
operations Acquisition on account
u Cost = invoice price minus the
Measurement after recognition discount, regardless of whether
(Accounting policy applied to an the discount is taken or not
ENTIRE class of PPE) u If discount is not taken, it is
u Cost Model charged to purchase discount lost
o PPE are measured at  other expense
Acquisition on installment basis
Cost XX u If an asset is offered at a cash
Less: (XX) price and at an installment price
Accumulated and is purchased at the
depreciation XX INSTALLMENT price, the asset
Accumulated shall be recorded at the CASH
impairment loss XX price.
Measurement
after recognition XX

Installment Price XX
u Revaluation Model Less: Cash Price (XX)
o PPE are carried at revalued Excess  XX
amount Interest to be
 amortized over c. Face value of bonds payable
the credit Exchange
period(Discount u With commercial substance
on NP is debited (there’s a significant gain or loss
upon acquisition) on exchange)
u Without commercial substance
Acquisition on installment basis (no gain nor loss)
u If an asset is acquired by WITH COMMERCIAL WITHOUT
installment and THERE IS NO SUBSTANCE COMMERCIAL
AVAILABLE CASH PRICE, the asset SUBSTANCE
is recorded at an: NO CASH CASH IS Item of PPE is
o Amount = PV of all payments IS INVOLVED measured
INVOLVED at the Carrying
using an implied interest rate Amount CA
Cost is Cost is equal to of asset given
Down Payment XX
measured the ff
Add: PV of NP XX at the ff in
Total Cost XX the order
of priority

Note payable XX a. FV of P.O.V PAYOR P.O.V PAYOR

property
Less: PV of NP XX
given FV of CA of
Implied Interest XX b. FV of asset XX asset XX
Implied interest  property given given
Discount on NP is received Add:Cash XX Add:Cash XX
debited c. CA of Cost XX Cost XX
property
u The effective interest method is given P.O.V. P.O.V.
RECIPIENT / RECIPIENT /
used in amortizing the discount
PAYEE PAYEE
on NP as interest expense
FV of CA of
Issuance of share capital asset asset XX
u Where a property is acquired given XX given
through the issuance of share Less:Cas (XX Less:Cas (XX)
capital, the property shall be h ) h
Cost XX Cost XX
Year Payme Intere Princip Prese If the exchange has No gain or loss is
nt st al nt commercial substance and is recognized when
Value measured at fair value, any exchange lacks
gain or loss on exchange is commercial
1.1.1 497,40 FULLY RECOGNIZED. substance
5 0
1.1.1 200,000 49,740 150,260 347,14 u Commercial substance
6 0 o Event or transaction causing the
measured at an amount equal to cash flows of the entity to change
the ff in the order of priority significantly by reason of the
a. Fair value of property received exchange.
b. Fair value of share capital
c. Par value or stated value of the
share capital

Issuance of bonds payable

u The asset acquired by issuing
bonds payable is measured in the
following order :
a. Fair value of bonds payable
b. Fair value of asset received
o An exchange transaction has FAIR VALUE TRADE IN VALUE
commercial substance when the APPROACH APPROACH
cash flows of the asset received (used if FV of asset
differ significantly from the cash given up is NOT
clearly
flows of the asset transferred. determinable)
Trade in OR
u A form of exchange Cash
u Involves a nondealer acquiring price w/
the asset from a dealer trade in XX
u Involves a significant amount of Less:
cash  has commercial substance Cash
price w/ (XX)
u The new asset is recorded at the trade in
following in the order of priority : Trade in
value of
1. FV of asset XX asset
given given XX
Add: cash paid XX Less: CA
Total Cost XX of asset
given (XX)
u and If FV of asset given in NOT Gain/Los
clearly determinable s on
2. Trade in value exchang XX
of XX e
asset given
Add: cash paid XX
Total Cost XX Donation
 this is the FV *NOTE: IFRS does not address donation
of asset or contribution ; however it explicitly
received addresses government grant
RECEIVED FROM RECEIVED FROM
FAIR VALUE TRADE IN SHAREHOLDERS NON-
APPROACH VALUE SHAREHOLDERS
APPROACH Recorded at the Recorded at FAIR
(used if FV of FAIR VALUE of the VALUE when they
asset given up
items received. are received or
is NOT clearly
determinable) DONATED CAPITAL receivable
FV of Trade in is credited. Credited to INCOME
asset value of FROM DONATION *
given XX asset or Liability acct if
given XX NOT a subsidy;
Add:Cash XX
when restrictions
Cost of Add:Cash XX
new XX are met, transferred
Cost of
asset to Income
new XX
asset Expenses incurred
FV of Trade in in connection with
asset value of donation
given XX asset (registration & legal
given XX fees)  charged to
Less: CA
of asset DONATED CAPITAL
Less: CA
given (XX) of asset Installation &
given (XX testing costs 
Gain/Los
) CAPITALIZED
s on
Gain/Lo
exchang XX
ss on
e
exchang XX
e
Construction
 u The cost of self-constructed PPE u Measured at the lower of CA or FV
includes less cost of disposal
o Direct cost of materials u Shall NOT be depreciated
o Direct cost of labor
IDLE OR ABANDONED PROPERTY
o Indirect cost and incremental u An entity shall NOT classify as held
overhead specifically for sale a noncurrent asset that is to
identifiable or traceable to the be abandoned.
construction u Rationale : the CA would be
u If the incremental overhead is NOT recovered principally through
specifically identifiable, allocation continuing use
of overhead may be done based u TEMPORARY idle activity or
on direct labor cost or direct labor abandonment DOES NOT preclude
hours. depreciating the asset  future
Saving or loss on construction benefits are consumed not only
through usage but also through wear
u Price at which
and tear, and obsolescence.
Actual cost the constructed ******NOTE********NOTE*********NOTE
of < asset can be ******
constructio purchased from Interest
n outside parties bearing
note
Non- Amortize cost
NOT INCOME BUT SAVING interest Date NP Ratio Interest
bearing Expense
u Any internal profit is eliminated in notes NP/ NP*Ratio
arriving at the cost of self- installme total NP
nt w/ Total Discount on
constructed asset. cash NP NP/ Total
u The cost of abnormal amount of price interest
Expense
wasted material, labor or Non- Present Value (PV) of ordinary annuity
overhead incurred in the interest Date Annual Interes Principal Present
production of self-constructed bearing Paymen t Value
notes t
asset is NOT included in the cost installme Multipl Annual Decreasin
of the asset. nt w/out y by payment g
cash int. less (PV less
price rate to Interest Principal)
DERECOGNITION PV
Total PV of Always
u means that the cost of the PPE must subsequen equal to
together with the related be t year is zero
accumulated depreciation shall be equal equal to
to the
removed from the accounts DONP principal of
u No future economic benefits are last year
expected from its use or disposal Term Present Value of 1
note- D Int Di Pr
u Gain (loss) from the derecognition of Non- a er sc es
an item of PPE  included in P&L interest t es ou e
u Net proceeds less Carrying amount = bearing
e t nt nt
note
Gain (loss) LUMPSUM ex on v
FULLY DEPRECIATED PROPERTY pe NP al
ns u
u When CA is equal to zero or CA is e e
equal to the residual value D Be Pr
u The cost of fully depreciated asset a g. es
remaining in service and the related t Ba e
accumulated depreciation SHALL e l nt
r of V
NOT be removed from the accounts. e D al
PROPERTY CLASSIFIED AS HELD FOR c O u
SALE ei NP e
u If the asset is available for v
e
immediate sale in the present d
condition WITHIN ONE YEAR from the 1 M De In
date of classification as held for sale st
ult cr cr
u EXCLUDED from PPE but presented p ipl ea e
separately as CURRENT ASSET e ie si as
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