CENTRAL PHILIPPINE UNIVERSITY Accountancy Department Acctg 4233 UPDATES IN FINANCIAL ACCOUNTING AND REPORTING (UFAR-2022) PROPERTY, PLANT AND EQUIPMENT On account – Invoice price less discount whether taken or not taken. On installment – Cash price or present value of future payments Issuance of shares – FV of asset, FV of shares and par value of shares in the order of priority Issuance of bonds payable – FV of bonds payable, FV of asset and face amount of bonds payable in the order of priority Exchange with commercial substance – FV of asset given plus cash payment on the part of payor or minus cash received on the part of recipient. Exchange without commercial substance – Carrying amount of asset given plus cash payment on the part of the payor or minus cash received on the part of recipient. No gain or loss on exchange is recognized. GOVERNMENT GRANT Grant related to income – match with future costs. However, if the costs are already incurred, the grant is outright income. Grant related to depreciable asset – over the life of the asset and in proportion to depreciation. The grant may be recognized as deferred income or as deduction from the cost of the asset. Any repayment of grant is recognized as loss to the extent of the excess of the payment over the balance of the deferred income. LAND – cost of demolition less proceeds from salvage to prepare the land for the intended use other than construction of new building, legal fees, title search and insurance, cost of relocating squatter, special assessment, property tax in arrears assumed, survey, clearing and landfill, mortgage assumed. Option money is capitalized if land is acquired. Otherwise, the option money is expensed. PIC Interpretation – The cost of demolishing the old building net of salvage proceeds to make room for the construction of a new building is capitalized as cost of new building Land improvements – sidewalks, street, pavements, parking lot, driveway, safety, lighting, cost of landscaping and new fence. BUILDING – Architect fee, plan and specifications, permit, insurance during construction, excavation, safety fence during construction and removal of safety fence, temporary building for workers, temporary building for tools and materials. Land and an old building are purchased at a single cost Old building usable Allocated cost to both land and building based on relative FV Old building unusable Allocated to land only Old building is demolished New building is accounted for as immediately to make room for construction of a new building Allocated carrying amount of PPE / Investment Property Loss usable building Inventory Cost of new building Demolition cost minus salvage PPE / Investment Property / value inventory Cost of new building No new building Cost of land A building is acquired and used in a prior period but demolished in the current period to make room for construction of a new building Carrying amount of the old Building Loss Demolition cost minus salvage Cost of new building value Payment to tenants to induce Cost of new building them to vacate the old building (in case of lease) MACHINERY – Installation, testing, freight, insurance while in transit, safety device, safety platform, estimated dismantling cost required by law or contract, site preparation, non-refundable purchase taxes Refundable purchase taxes, such as VAT are not capitalized. SPECIFIC BORROWING –capitalized interest is equal to actual interest incurred during construction period minus interest income on the temporary investment of the borrowing. GENERAL BORROWING – Weighted expenditures times average interest rate equals capitalizable interest but cannot exceed actual interest incurred. Interest income on investment of the general borrowing is ignored. If expenditures are incurred evenly during the year, the average is equal to the total expenditures divided 2. DEPRECIATION – Straight line, production method, SYD and double declining balance Residual value – Ignore for double declining balance method in earlier years Full depreciation in the year of acquisition and no depreciation in the year of disposal. No depreciation in the year of acquisition and full depreciation in the year of disposal. Depreciation is based on nearest full month. DEPLETION – Depletable amount equals acquisition cost plus exploration cost, development cost and present value of estimated restoration cost required by law or contract minus land value or residual value Total depletion during the year – Total production times depletion rate per unit Depletion included in cost of goods sold – Units sold times depletion rate per unit. PFRS for SMEs: Borrowing costs are not capitalized they are recognized outright as expense Differences between IFRS for SMEs and FULL IFRS PFRS for SMEs The PFRS for SMEs is now amended to allow the revaluation of PPE. Full IFRS In other words, the PFRS for SMEs and full PFRS are now the same with respect to matters related to PPE such as measurement, depreciation method, useful life, residual value, depreciation of significant components, revaluation, impairment and derecognition. It does not address PPE/noncurrent asset held for sale. A PPE/noncurrent asset held for sale is measured at the Meaning it is not separately presented. lower of carrying amount and FV less cost of disposal and presented separately as a current asset. Government grant is recognized when the conditions are actually satisfied. It is no longer depreciated. Government grant is recognized when there is reasonable assurance that the entity will comply with the specified conditions. Does not allow an entity to match the grant with expenses for which it is intended to compensate. Government grant is recognized as income over the periods necessary to match them with the related costs for w/c they are intended to compensate. Government grant is a deferred income until the conditions are actually satisfied. Borrowing costs are not capitalized. Meaning all borrowing cost are recognized as expense in the period when incurred. Government grant related to asset may be treated either as or reduction in the CA of the asset.. Borrowing costs for qualifying asset are capitalized CENTRAL PHILIPPINE UNIVERSITY Accountancy Department Acctg 4233 UPDATES IN FINANCIAL ACCOUNTING AND REPORTING (UFAR-2022) REVALUATION AND IMPAIRMENT Revaluation surplus equals sound value minus carrying amount Sound value equals fair value or depreciated replacement cost The revaluation surplus is recognized net of tax and realized through retained earnings over the remaining life of the assets. Impairment loss is the excess of carrying amount over recoverable amount. Recoverable amount is the higher between fair value less cost of disposal and value in use.
