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