RECOGNITION/DERECOGNITION MEASUREMENT

RECOGNITION INITIAL – at FV plus transaction costs

1
Internally generated are not recognized as intangible assets. Measurement of cost:
FINANCIAL ASSETS

a. Purchase – purchase price + Direct cost, if deferred, cash price equivalent

b. Non exchange – FV at acquisition date
c. Exchange
d. Entity combination - FV @ acquisition date
e. Internal generation – research phase or development phase.

Subsequent expenditure on recognized intangible assets are generally expense, unless

they meet the definition of an intangible asset.

DERECOGNITION SUBSEQUENT – cost less any accumulated amortization2 and any accumulated
 When it is disposed impairment3 losses.
 When no future economic benefits or service potential is expected from the
2
asset. Amortization
a. Indefinite Life – no foreseeable limit. Not amortized but subject to impairment.
The difference between the carrying amount and net disposal proceed is recognized as b. Finite Life – amortized using straight line method over a period od 2-10 years.
G/L in surplus or deficit. Residual value is assumed to be ZERO.
3
Impairment – intangible asset with indefinite life or intangible asset not yet available
for use at least ANNUALLY.

Note: intangible asset with Definite useful life can be test for impairment only when an
indication of impairment exist.
 RECOGNITION/DERECOGNITION MEASUREMENT
RECOGNITION INITIAL – at cost1
INTANGIBLE ASSETS
1
Internally generated are not recognized as intangible assets. Measurement of cost:
f. Purchase – purchase price + Direct cost, if deferred, cash price equivalent
g. Non exchange – FV at acquisition date
h. Exchange
i. Entity combination - FV @ acquisition date
j. Internal generation – research phase or development phase.

Subsequent expenditure on recognized intangible assets are generally expense, unless

they meet the definition of an intangible asset.

DERECOGNITION SUBSEQUENT – cost less any accumulated amortization2 and any accumulated
 When it is disposed impairment3 losses.
 When no future economic benefits or service potential is expected from the
2
asset. Amortization
c. Indefinite Life – no foreseeable limit. Not amortized but subject to impairment.
The difference between the carrying amount and net disposal proceed is recognized as d. Finite Life – amortized using straight line method over a period od 2-10 years.
G/L in surplus or deficit. Residual value is assumed to be ZERO.
3
Impairment – intangible asset with indefinite life or intangible asset not yet available
for use at least ANNUALLY.

Note: intangible asset with Definite useful life can be test for impairment only when an
indication of impairment exist.
 RECOGNITION/
MODES OF ACQUISITION MEASUREMENT
DERECOGNITION
RECOGNITION a. BY PURCHASE – cash discounts are excluded. INITIAL – at cost1
Purchased under installment basis is initially measured at
 It is PROBABLE that FUTURE ECONOMIC cash price equivalent. 1
Cost compromise the ff:
BENEFITS associated with the item WILL FLOW a. Purchase price – after deducting trade discounts and
PROPERTY, PLANT, AND

TO THE ENTITY; and Promotional Items rebates.

 The COST of the item CAN BE MEASURED  If same – allocated to all items acquired b. Direct costs
RELIABLY  If different – initial cost is its FV. Purchase price is c. Present value of decommissioning and restoration
allocated to other asset. costs
The capitalization threshold of P50,000. (per item) – general
rule b. BY CONSTRUCTION – initially recorded in SUBSEQUENT EXPENDITURES
Costs incurred in using or redeploying PPE are NOT
EQUIPMENT

“construction in Progress”.
capitalized.
Construction contract – contract price
Self-construction – cost of DM, DL, & Overheads. Subsequent expenditures recognized:
a. Repairs & Maintenance
c. THROUGH EXCHANGE - depends on whether it has  Minor – charged as expense
commercial substance or not.  Major – considered betterments

No G/L if measured at the CA of the asset given up (plus b. Replacement cost – capitalized
cash pair or minus cash received)
c. Spare parts & servicing equipment –
d. THROUGH NON-EXCHANGE – FV at the acquisition  Minor – recog as inventory and charged as
date. expense when consumed.
 Major – and stand by are recog as PPE
e. THROUGH INTRA/INTER-AGENCY TRANSFERS
– at CA of the asset received. d. Betterments – cost are capitalized (if meet the
recognition) and subsequently depreciated.
f. THROUGH FINANCE LEASE
e. Additions and rearrangements –

Additions:
 New unit – depreciated over its own useful life.
 Expansion cost – depreciated over the shorter of
its useful life.

Rearrangements - Cost are capitalized and

depreciated. The CA of original installation cost is
derecognized and charged as loss.
DERECOGNITION
 When it is disposed
 When no future economic benefits or service
potential is expected from the asset.
The difference between the carrying amount of derecognized
PPE and their net disposal proceed is recognized as G/L in
surplus or deficit.
SUBSEQUENT – using COST MODEL (cost less any
accumulated depreciation2 and any accumulated impairment3
losses)
2
Depreciation
 Straight line method
 Monthly basis
 Residual value: at least 5%
3
Impairment – carrying amount exceeds recoverable
amount. Recoverable amount; higher between value in use 4
and FV less cost to sell.
4
Computation of Value in use
a. Depreciated replacement cost approach – VIU is
equal to Replacement cost (RC = lower between
cost of replacing and reproducing the asset).
b. Restoration cost approach – VIU is equal to
depreciated replacement cost or depreciated
reproduction (whichever is lower) minus estimated
restoration cost.
c. Service units approach – VIU is equal to depreciated
replacement cost or depreciated reproduction
(whichever is lower) minus proportionate reduction