PROPERTY, PLANT, AND EQUIPMENT
Acquisition Mode
Measurement
Journal Entry
Accounting Procedure
Cash price (CP) equivalent at recognition date
PLUS DACs
PPE acct.
Cash
Allocation: Relative Fair Value (FV) approach
PPE acct. @ allocated cost
Cash
ON ACCOUNT W/
CASH DISC.
Invoice price LESS
discounts
PPE acct
Accounts payable
INSTALLMENT
BASIS
Purchase
PPE account
CP equivalent, if
Discount on NP
available
Cash
The excess between CP
NP @FA
and installment price
If CP equivalent is NOT
Installment Payment
(IP) is amortized over
available, amount is
NP
the credit period
equal to present value
Cash
(PV) of all payments
Amortization
Interest expense
using an implied interest
Discount on NP
rate
CASH BASIS
If basket price
Disc NOT taken;
recognize as expense
Proforma Amortization Table
Period
1
2
Period
1
2
3
NP
xxx
xxx
Imterest Expense
Fraction
xxx
x/x
xxx
x/x
and so on and so forth
Interest
Principal
Payment
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
and so on and so forth
PV
xxx
xxx
xxx
Valuation procedure ff the Order of Priority:
ISSUANCE OF
SHARE CAPITAL
(SC)
a. FV of the PPE RECEIVED (preferred)
b. FV of the SHARES ISSUED
c. Par value or stated value of the SHARES
ISSUED (no share premium is recognized)
PPE @FV of PPE RECEIVED
SC @par
SP (excess)
PPE @FV of shares ISSUED
SC @par
SP (excess)
PPE @par of shares ISSUED
SC @par
Valuation procedure ff the Order of Priority:
a. FV of BP (preferred)
ISSUANCE OF
BONDS PAYABLE
(BP)
b. FV of the PPE RECEIVED
c. FACE AMOUNT (FA) of the BP (no premium
is recognized)
PPE @FV of the BP ISSUED
BP @FA
Premium on BP
PPE @FV of PPE RECEIVED
BP @FA
Premium on BP
PPE @FA of the BP
BP @FA
EXCHANGE
Valuation procedure ff the Order of Priority:
WITH
commercial
substance: cash
NOT
INVOLVED
a. FV of the property (P) GIVEN (preferred)
b. FV of the property (P) RECEIVED
c. Carrying amount (CA) of the property (P)
GIVEN (no gain or loss is recognized)
Valuation procedure:
a. FV of the property (P) GIVEN PLUS cash
payment - on the part of the payor
WITH
commercial
substance: cash is
INVOLVED
b. FV of the PPE GIVEN MINUS cash received on the part of the payee
PPE @FV of PPE GIVEN
Loss on exchange (if loss)
PPE @CA of PPE GIVEN
Gain on exchange (if gain)
PPE @FV of PPE RECEIVED
Loss on exchange (if loss)
PPE @CA of PPE GIVEN
Gain on exchange (if gain)
PPE @CA of PPE GIVEN
PPE @CA of PPE GIVEN
Books of the payor
PPE @FV of PPE GIVEN + CASH
Accum. Dep.
Loss on exchange (if loss)
Old PPE at acquisition cost
Cash
Gain on exchange (if gain)
Books of the payee
PPE @FV of PPE GIVEN - CASH
Accum. Dep.
Cash
Loss on exchange (if loss)
Old PPE at acquisition cost
Gain on exchange (if gain)
Valuation procedure:
Books of the payor
PPE @CA of PPE GIVEN + CASH
Accum. Dep.
NO commercial
Old PPE at acquisition cost
substance (no
Cash
Books of the payee
gain or loss is
b. Carrying amount (CA) of the PPE GIVEN (if PPE @CA of PPE GIVEN - CASH
recognized)
involved) MINUS cash received - on the part of the Accum. Dep.
payee
Cash
Old PPE at acquisition cost
Commercial substance defined:
the event or transaction causing the cash flows of the entity to change significantly by reason of the exchange
a. Carrying amount (CA) of the PPE GIVEN (if
involved) PLUS cash payment - on the part of the
payor
Entity-specific value defined:
the present value of the cash flows an entity expects to arise from the continuing use of an asset and from the disposal at the time of useful life or expects to
incur when settling a liability
Valuation procedure ff the Order of Priority:
a. FV of the PPE GIVEN PLUS cash payment
(preferred) A.K.A. FV Approach
Trade-in
PPE @FV of PPE GIVEN + CASH
Accum. Dep.
Loss on exchange (if loss)
Old PPE at acquisition cost
Gain on exchange (if gain)
PPE @TIV of PPE GIVEN + CASH
b. TRADE-IN VALUE (TIV) of the PPE GIVEN Accum. Dep.
PLUS cash payment (in effect, this is the FV of the Loss on exchange (if loss)
asset received) A.K.A. TIV Approach
Old PPE at acquisition cost
Gain on exchange (if gain)