CHAPTER 15

Property
Plant and
Equipment
(PAS 16)

RICKY BOY B. LEONARDO

BSMA 2-2
TECHNICAL KNOWLEDGE

 To know the definition of Property, Plant and Equipment.

 To know the recognition of Property, Plant and Equipment.
 To know the measurement of Property, Plant and Equipment.
 To identify the methods of depreciating Property, Plant and
Equipment.
Property, Plant and Equipment

This are tangible assets that are held for use

in production or supply of goods or
services, for rental to , or for administrative
purposes , and are expected to be used
during more than one period.
 Major Characteristics of
Property, Plant and Equipment
These are TANGIBLE ASSETS.

These are USED IN BUSINESS.

These are expected to be used OVER A PERIOD OF TIME.

Examples of Property, Plant
and Equipment

LAND  MOTOR VEHICLE

 FURNITURE AND FIXTURES
BUILDING
 OFFICE EQUIPMENT
MACHINERY  PATTERNS, MOLDS AND
DIES
SHIP
 TOOLS
AIRCRAFT  BEARER PLANTS
 Recognition of
Property, Plant and Equipment

An item of Property, Plant and Equipment shall be recognize as an

asset when :

A.) If it is probable that future economic benefits associated with

asset will flow to the entity.

B.) The cost of the asset can be measured reliably.

Measurement at recognition
An item of Property, Plant and Equipment that
qualifies for recognition as an asset shall be
measured at COST. ELEMENTS OF
COST
 PURCHASE PRICE
COST – is the amount of cash or cash equivalent
 NONREFUNDABLE
paid and the fair value of the other consideration PURCHASES TAXES
given to acquire an asset at the time of acquisition  DIRECTLY ATTRIBUTABLE
or construction. COST
 INITIAL ESTIMATE OF THE
COST
Cost Not Qualifying Recognition

 Cost opening a new facility.

 Cost introducing a new product or service.
 Cost of conducting business in a new location.
 Administration and other general overhead cost.
 Cost incurred while an item capable of operating.
 Initial operating lost.
 Cost of relocating or recognizing part of entity’s operations.
Measurement after Recognition

COST MODEL REVALUATION MODEL

Means that the Property, Plant
and Equipment are carried at
cost less accumulated
depreciation and any
accumulated impairment loss.
Means that the Property , Plant
and Equipment are carried at
revalued carrying amount.
 BASIS OF ACQUISITION
 ACQUISITON ON A CASH - the cost
of the PPE is the cash price
equivalent at the recognition date.
 ACQUISITION ON ACCOUNT- the
PPE was acquired on account
subject to cash discount.
 ACQUISITION ON INSTALLMENT –
the payment of purchased PPE was
deferred beyond normal credit
terms.
 ISSUANCE OF SHARE CAPITAL- shall be
measured by the fair value of the
consideration received.
 EXCHANGE- cost of PPE in terms of
nonmonetary or monetary asset is
measured at fair value plus any cash
payment.
 CONSTRUCTION- it includes the cost of
direct materials, direct labor and other
identifiable or traceable cost to the
construction.
 DERECOGNITION

 It means that the cost of the Property, Plant and Equipment together with the
related accumulated depreciation shall be remove from statement of financial
position.
 PAS 16, paragraph 67, provides the carrying amount of an item of PPE shall be
derecognized on disposal or when future economic benefits are expected from
the use of disposal.
 Gains should be included in the revenue but treated as other income.
 The gain or loss of PPE in disposal should be determined as the difference
between the net disposal proceeds and the carrying amount of the item.
 Concepts of Depreciation
Depreciation is define as the systematic allocation of the depreciable
amount of an asset over the useful life

 DEPRECIATION IS AN EXPENSE.  FACTORS OF DEPRECIATION NAMELY

DEPRECIABLE AMOUNT, RESIDUAL
 DEPRECIATION BEGINS WHEN THE
VALUE AND USEFUL LIFE.
ASSET IS AVAILABLE FOR USE.
 Depreciable amount- cost of an
 DEPRECIATION CEASES WHEN THE
asset less residual value.
ASSET IS DERECOGNIZED.
 Residual value- estimated net
 THE OBJECTIVE OF DEPRECIATION
amount currently obtainable.
IS TO HAVE EACH PERIOD
BENEFITING FROM THE USE OF  Useful life- period which asset is
ASSET BEAR AN EQUITABLE VALUE. expected to be used.
Depreciation Methods

 STRAIGHT LINE METHOD – constant charge over the useful life of he asset.
Considers the depreciation as a function of time rather than the function of
usage.
 PRODUCTION METHOD – more on a function of usage than a function of time.
The useful life of an asset is considered in terms of the output it produces or
the number of hours it works.
 DIMINISHINF BALANCE OR ACCELERATED METHOD – provide higher
depreciation in earlier years and lower depreciation in the later years. It
includes sum’s of the years method and double declining balance method.
 ANY QUESTIONS ?

IF NONE,

THANK YOU SO MUCH!

“DO NOT LIMIT YOURSELF JUST MEET THE STANDARS
OF OTHER PEOPLE, YOU HAVE YOUR OWN AND YOU
HAVE TO LIVE IT.” - RICKY BOY B. LEONARDO