Property, Plant and Equipment
activity, other than
bearer plants
Governing Standard: PAS 16
INITIAL RECOGNITION &
MEASUREMENT
Definition:
Property, Plant and Equipment are
tangible assets that are held for use in the
production or supply of goods or services,
for rental to others, or for administrative
purposes, and are expected to be used
during more than one period.
a. Tangible Assets
b. Used in business (for production
or supply of goods)
c. Long-term in nature (for more
than one year)
Classification : Non-current asset
PPE
NOT A PPE
Land used in
business
Land held for
speculation
Land held for
future plant site
Land held for
undetermined
future use
Building used in
business
Land and/or
building classified
as investment
property
Equipment used in
the production of
goods
Property held for
sale in the
ordinary course of
business
Equipment held
for environmental
and safety
reasons
Assets classified
as held for sale
under PFRS 5
(disposal of
long-term assets)
Equipment held
for rentals
Biological assets
related to
agricultural
Major spare parts
and long-lived
stand-by-equipme
nt
Intangible assets
Furniture and
Fixture
Minor spare parts
and short-lived
stand-by
equipment
Bearer Plants
Recognition:
● It is probable that future
economic benefits associated
with the item will flow to the entity;
and
● The cost of the item can be
measured reliably.
Spare parts, stand-by equipment and
servicing equipment:
- PPE if they meet the definition;
entity expects it to be used for
more than one period
- If not, categorized as Inventory
Initial Measurement: At Cost
Cost:
A. Purchase price + import duties +
nonrefundable purchase taxes trade discounts - rebates
*Trade discounts are
deducted whether taken
or not
*Rebates - partial refunds
B. DACs
C. Initial estimate of cost of
dismantling and removing the item
and restoring the site on which it is
located, the obligation for which
an entity incurs
DACs(from bringing the asset into its
working condition)
-
-
Cost of employee benefit arising
directly from the construction or
acquisition of the item, property,
plant
and
equipment
(commissions + bonuses)
Cost of site preparation
Initial delivery and handling cost
Professional fees
Cost of testing the asset (deduct
net proceeds from selling any
items
such
as
samples
produced when testing the
equipment)
Costs not qualifying for recognition
(expensed items):
A. Cost of opening new facility
B. Cost of introducing a new product
or
service
(advertising
and
promotion)
C. Cost of conducting business in a
new location
D. Administration ad other general
overhead costs
E. Costs incurred while an item
capable of operating in the manner
intended by the management has
yet to be brought into use or is
operated at less than full capacity
F. Initial operating losses
G. Costs of relocating or reorganizing
part or all of an entity’s operations
Subsequent Measurement:
● Cost Model
● Revaluation Model
Model is applied to the entire
classification of the PPE
Cost Model
Revaluation
Model
= Cost Accumulated
Depreciation Accumulated
Impairment Loss
= Revalued
Amount Subsequent
Amortization Subsequent
Accumulated
Impairment Loss
Revalued model = FV
Acquisition of Property:
1. Cash basis
2. On account subject to
discount
3. Installment Basis
4. Issuance of share capital
5. Issuance of bonds payable
6. Exchange
7. Donation
8. Government grant
9. Construction
cash
Acquisition on Cash Basis
Cost: Cash price equivalent
Cash paid + DACs
If several assets are purchased at “basket
price” or “lump sum price”:
- Apportion the assets based of
relative fair value
Acquisition on Account
Cost: Invoice price - discount (whether
taken or not)
Discount: if not taken, charged to
purchase discount lost
- Reduction of cost and not
income
Two Methods:
● Gross Method - initially recorded
at gross amount
● Net METHOD - initially recorded at
net amount
- uses
purchase
discount
loss
account
*If Non-Vat Registered - VAT in the
purchase price is not deducted/ is
capitalized
VAT Registered - it is deducted
Acquisition on Installment Basis
Cost: Cash Price
- If an item is offered at a Cash
price and at an installment price
and is purchased at the installment
price, Asset shall be recorded at
the Cash price
- Excess of the installment price
over the Cash price is treated as
interest and shall be amortized
over the credit period.
No Available Cash Price
- Recorded at the Present Value of
all payments using an implied
interest
- Present
value
of ordinary
annuity of 1
*Effective interest method is used in
amortizing the discount on note
payable
Acquisition by Share Capital
● Fair Value of Asset Received
● Fair Value of Share Capital
● Par Value/Stated Value of Share
Capital
Acquisition by Bonds Payable
● FV of Bonds Payable
● FV of Asset Received
● Face Amount of Bonds Payable
Acquisition Through Exchange
a. Nonmonetary Asset
b. Combination of Non-Monetary
and Monetary
With Commercial Substance
- Gains and Losses Recognized
Payor:
FV of Asset Given Up + Cash Paid
Payee:
FV of Asset Given Up - Cash Received
Hierarchy/Order of Priority:
1. FV of Asset Given Up (+ Cash
Paid/ - Cash Received)
2. FV of Asset Received
3. CA of Asset Given Up (+Cash
Paid/ - Cash Received)
Acquisition Through Trade In
- Used asset is part of payment of
new asser
- Hierarchy Applied
NO FV OF ASSET GIVEN UP:
Cash Paid Without Trade IN
- LIST PRICE/ RETAIL VALUE
IGNORED
Acquisition Through Trade In
SHAREHOLDER:
Fair Value - Credit to DONATED
CAPITAL + Expenses connected
NOT A SHAREHOLDER - Recognized as
income
COST OF LAND
● Purchase Price
● Broker’s Commission
● Escrow Fees
● Closing Costs (Titling, Attorney’s
Fees, Registration Fees)
● Costs in getting the land for its
intended use (surveying, grading,
filling, drainage and clearing)
● Unpaid Taxes (prior to date of
acquisition) assumed by the
buyer
● Assumed liens, mortgages and
encumbrances
● Special Assements of Local
Government (pavements, sewers,
street lights, drainage systems)
●
●
●
●
OPTIONS PAID TO ACQUIRE
THE LAND. If land not acquired
then expensed.
Costs incurred to vacate premises
and costs of relocating and
reconstructing property belonging
to others.
Initial Estimate of restoration costs
for which the entity has a present
obligation.
Land Improvement with Indefinite
useful life
LAND IMPROVEMENTS WITH DEFINITE
USEFUL LIFE:
- Depreciated over there
useful life and has a
separate account
COST OF BUILDING
- Purchase Price
- Broker’s Commission
- Unpaid Taxes (prior to date of
acquisition) assumed by the
buyer
- Assumed liens, mortgages and
encumbrances
- Costs incurred to induce tenants to
vacate the premises
- COSTS OF GETTING THE
BUILDING IN ITS INTENDED
USE (before occupancy)
1. Remodeling
2. Renovation
3. Other Repairs
BULDING IMPROVEMENTS
- Increases useful life/
current state
●
●
●
fixtures
improve
Cost of elevator, escalator or
others (not originally included)
Ventilation, plumbing and lighting
system (after the occupancy)
Immovable fixtures - if removed
would cause damage to the bldg.
MOVABLE - Furnitures and
COST OF EQUIPMENT
- Purchase Price
- Broker’s Commission
- Non-refundable Purchase Tax
- Freight, Handling Charges, and
Insurance on the equipment while
on transit
- Cost
of
necessary
special
foundations or platforms
- Assembling and installation costs
- Costs of Testing and Conducting
trial runs (gross of sales proceeds
from sale of samples produced
during testing)
- Initial estimate of decommissioning
and restoration costs for which an
entity has a present obligation
(X) Does not include:
● Cost of relocating equipment after
it has been put
● Cost of training personnel
● Cost of dismantling and removing
old equipment (belongs to the
entity) - recognized as expense
except when cost was previously
recognized as liability.
Land and Old Building - LUMP SUM
PRICE
Old Building:
Usable
-
Allocated
to both
Land and
Building
based on
FAIR
VALUE
Unusable
-
Allocated
to LAND
ONLY
Old Building Demolished Immediately
For construction of NEW BUILDING:
NEW BUILDING recorded as PPE or
Investment Property:
CA of USABLE OLD BUILDING =
Recognized as LOSS
AIR(3)
● ADDITION
- Modification or alteration
which increases physical
size
- CAPITALIZED
NEW BUILDING recorded as
INVENTORY
CA of USABLE OLD BUILDING =
CAPITALIZED as Cost of New
Building
●
Demolition Capitalized:
COST OF NEW BUILDING (whether
PPE, Inv. Property or Inventory)
Demolition Cost - Salvage Value
●
COST OF LAND
Ordinary Repair
- Replacement
minor part
Requisites:
- Demolished to prepare land
for intended use
- Not for CONSTRUCTION of
new BLDG
EXTRAORDINARY
REPAIR
- Replacement
MAJOR PART
Building is Acquired and Used in Prior
Period
Demolished
building
for
construction
of
new
●
Regardless if PPE, Inv. Property,
Inventory
●
CA of Old
Building
LOSS
●
IMPROVEMENT
- Increases the service life
or capacity of asset
- CAPITALIZED
- Replacement of an/part
thereof with one of a
better or superior quality
Replacement
- Substitution but new asset
is not better than old asset
Net
Demolitio
n Cost
Old Building - Under Lease
- Payments to tenants to vacate the
building charged as cost of new
building
●
of
Repair
- Restore the asset in good
operating condition
Ordinary Repair
- Replacement
of
minor part
- Expensed
EXTRAORDINARY
REPAIR
- Replacement
MAJOR PART
- CAPITALIZED
COST OF
NEW
BUILDING
of
of
Rearrangement
- Relocation or redeployment
- Expensed
CAPITALIZED SUBSEQUENT COST:
A. Probable
future
benefits
B. Measured reliably
-
economic
Extends the life
Increases the capacity
Improves the safety and efficiency