PPE part 1

• Property, Plant and Equipment


  are tangible asset(with physical substance) that are held for use in production or supply of goods or services, for rental to others, or for administrative purposes, and are expected used during

  A) land

  B) Land improvements

  C) Building

  D) machinery

  E) ship

  F) aircraft

  G) motor vehicles

  H) Furniture and fixtures

  I) office equipment

  J) patterns, molds and dies

  K) tools

  L) Bearer plants

  M) Examples of property, plant and equipment

  
• The following are not PPE:

  • Land held for speculation
  • Land held for undetermined use
  • Land and/or building classified as investment property under PAS 40
  • Property held for sale in the ordinary course of business
  • Assets classified as held for sale under PFRS 5
  • Biological assets related to agricultural activity, other than bearer plants Intangible assets
  • Minor spare parts and short-lived standby equipment
• Recognition

  1. An item of property, plant and equipment is only recognized if:it is probable that the future economic benefits associated with the asset will flow to the entity, and
  2. the cost of the asset can be measured reliably. (PAS 16.7)
• Treatment for most spare parts and servicing equipment

  are usually carried as inventory and recognized as an expense when consumed. However, major spare parts and stand-by equipment qualify as property, plant and equipment when the entity expects to use them during more than one period

  A) spare parts and servicing equipment

  B) major spare parts

  C) Minor spare parts

  D) classified as ppe

  E) classified as inventories

  
• Initial Measurement


  Items of property, plant and equipment should be measured at cost, which is the amount of cash or cash equivalent paid and the fair value of other consideration given to acquire an asset at the time of acquisition or construction.
• Initial Measurement (this includes)

  1. original purchase price including import duties and nonrefundable purchase taxes after deducting trade discounts and rebates,
  2. any direct costs necessary to bring the asset to the location and condition for its intended use (e.g. site preparation, delivery and handling, installation, related professional fees for architects and engineers), and
  3. the estimated cost of dismantling and removing the asset and restoring the site
• Directly attributable costs

  • Cost of employee benefits arising directly from the construction or acquisition of the item of property, plant and equipment
  • Cost of site preparation
  • Initial delivery and handling cost
  • Installation and assembly cost
  • Cost of testing whether the asset is functioning properly
  • Professional fees.
• Types of costs


  • Costs expensed outright
  • Cost of operating a new facility
  • Cost of introducing a new product or service (including costs of advertising and promotional activities)
  • Cost of conducting business in a new location or with a new class of customers (including costs of staff training)
  • Administration and other general overhead costs
  • Costs incurred in using or redeploying an item
  • Cost incurred while an item capable of operating in the manner intended by management has yet to be brought into use or operated at less than full capacity
  • Initial operating loss
  • Amounts related to certain incidental operations
• Cessation of capitalization of costs

  Capitalization of costs ceases when the PPE is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying a PPE are not capitalized
• Property, Plant and Equipment


  • Land held for speculation
  • Land held for undetermined use
  • Land and/or building classified as investment property under PAS 40
  • Property held for sale in the ordinary course of business
  • Assets classified as held for sale under PFRS 5
  • Biological assets related to agricultural activity, other than bearer plants
  • Intangible assets
  • Minor spare parts and short-lived stand-by equipment
• Recognition of PPE


  • It is probable that the future economic benefits associated with the asset will flow to the entity
  • The cost of the asset can be measured reliably
• Initial Measurement


  Items of property, plant and equipment should be measured at cost, which is the amount of cash or cash equivalent paid and the fair value of other consideration given to acquire an asset at the time of acquisition or construction
• Directly attributable costs


  • Cost of employee benefits arising directly from the construction or acquisition of the item of property, plant and equipment
  • Cost of site preparation
  • Initial delivery and handling cost
  • Installation and assembly cost
  • Cost of testing whether the asset is functioning properly
  • Professional fees
• Costs expensed outright


  • Cost of operating a new facility
  • Cost of introducing a new product or service (including costs of advertising and promotional activities)
  • Cost of conducting business in a new location or with a new class of customers (including costs of staff training)
  • Administration and other general overhead costs
  • Costs incurred in using or redeploying an item
  • Cost incurred while an item capable of operating in the manner intended by management has yet to be brought into use or operated at less than full capacity
  • Initial operating loss
  • Amounts related to certain incidental operations
• Cessation of capitalization of costs

  Capitalization of costs ceases when the PPE is in the location and condition necessary for it to be capable of operating in the manner intended by management
• Modes of acquiring PPE

  • Purchase
  • Issuance of equity instrument or share capital
  • Issuance of debt instrument or bonds payable
  • Exchange
  • Donation
• Land (Property)


  Classified as PPE if it used in the entity's operations as "owner-occupied" property
• Land not classified as PPE

  • Land being sold in the ordinary course of business - Inventory
  • Land held for sale under PFRS 5 - Noncurrent asset held for sale
  • Land held for long-term capital appreciation - Investment property
  • Land held for currently undetermined use - Investment property
  • Land held as site for a building being constructed or developed for future use as investment property - Investment property
  • Land leased out under operating lease - investment property
  • Land leased out under finance lease - derecognized in the lessor's books of accounts
• Cost of land


  • Purchase price including necessary costs
  • Closing costs
  • Costs incurred in getting the land in the condition for its intended use
  • Unpaid taxes up to date of acquisition assumed by buyer
  • Assumption of any liens, mortgages, encumbrances and interest on such on such mortgages assumed by buyer
  • Special assessments for local government-maintained improvements
  • Option paid to acquire the land
  • Payment to tenants to induce them to vacate the premises and costs of relocating and reconstructing property belonging to others
  • Initial estimate of restoration costs for which the entity has a present obligation
  • Any additional land improvements that have indefinite useful life
• Land improvement


  Enhancements to the land that have a definite useful life, recognized separately from land and depreciated over their estimated useful lives
• Building (Plant)


  Classified as PPE if it used in the entity's operations as "owner-occupied"
• Buildings not classified as PPE

  • Building being sold in the ordinary course of business - Inventory
  • Building held for sale under PFRS 5 - Noncurrent assets held for sale
  • Building being constructed or developed for future use as investment property - Investment property
  • Building leased out under operating lease - Investment property
  • Building leased out under finance lease - derecognized in the books of accounts
• Cost of purchased building

  • Purchase price including other necessary costs
  • Unpaid taxes up to the date of acquisition
  • Mortgages, encumbrances and liens on the building assumed by the buyer
  • Option paid to acquire the building
  • Costs incurred to induce tenants to vacant premises
  • Any renovation or remodeling costs incurred to put a building purchased in a condition suitable for its intended use
• Building improvement


  Subsequent expenditures that either increase the useful life or improve the current state of a building
• Examples of building improvements

  • Cost of elevator, escalator, or similar item that was not originally included
  • Ventilation, plumbing and lighting systems installed after the occupancy or during construction
  • Immovable fixtures attached to the building
• Equipment


  Refers to delivery and transportation equipment, office equipment, machinery, furniture and fixtures, furnishings, factory equipment, and similar fixed assets
• Cost of equipment


  • Purchase price including other necessary costs
  • Freight, handling charges, and insurance on the equipment while in transit
  • Cost of necessary special foundations or platforms
  • Assembling and installation costs
  • Cost of testing and conducting trial runs
  • The initial estimate of decommissioning and restoration costs
• Costs not included in equipment cost

  • Cost of relocating the equipment after it has been put to the location and condition originally intended by management
  • Cost of training personnel who will be responsible in operating the equipment
  • Cost of dismantling and removing old equipment, which belongs to the entity, prior to the installation of new equipment
• Bearer plants


  A living plant that is used in the production or supply of agricultural produce, is expected to bear produce for more than one period, and has a remote likelihood of being sold as agricultural produce except for incidental scrap sales
• Lump-sum purchase of items of PPE

  Lump-sum price or basket price is allocated to the individual assets based on their relative fair values at the date of purchase
• PIC Interpretation on land and building

  If the building is usable, the single cost is allocated to land and building based on their relative fair value. If the building is unusable, the single cost is allocated to land only.
• Accounting for demolition costs

  • If the old building is demolished immediately to make room for construction of a new building, the allocated carrying amount of the usable old building is recognized as a loss or capitalized as cost of the new building
  • If 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, the carrying amount of the old building is recognized as a loss
• Self-constructed assets


  The cost includes materials, labor, and overhead costs incurred during construction, architectural costs, supervision costs, costs of building permit, excavation costs, insurance costs and safety inspection fees, costs of temporary structures, and borrowing costs
• Costs not included in self-constructed asset cost

  • Internal profits or savings on self-construction
  • Cost of abnormal amounts of wasted materials, labor, or other resources due to inefficiencies
  • Cost of uninsured hazards or claims for uninsured accidents
  • Cost of private driveways, walks, permanent fences, parking lots and drainages and water systems that are not included in the building's blueprint
  • Income from incidental operations
• Donated PPE


  Measured at fair value and accounted for as donated capital if the donor is an owner, income if the donor is an unrelated party, or government grant if the donor is the government
• Modes of acquiring PPE (I. Acquisition on a cash basis)


  The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. The cost of asset acquired on a cash basis simply includes the cash paid plus directly attributable costs such as freight, installation cost and other cost necessary in bringing the asset b the location and for the intended use.Moreover, when several assets are acquired at a "basket price" or 'lump sum price", it is necessary to apportion the single price to the assets acquired on the basis of relative fair value.
• Modes of acquiring PPE (Il. Acquisition on account)

  When an asset is acquired on account subject to discount, the cost of the asset is equal to the invoice minus the discount, regardless of whether the discount is taken or not.If the discount is not taken, the same is charged to purchase discount lost account which is shown as other expense. Cash discounts are generally considered as "reduction of cost" and not as income
• Modes of acquiring PPE (Ill. Acquisition on installment basis)

  • When payment for item of plant and equipment is deferred normal credit terms, the cost is the cash price equivalentThe excess of the installment price over the cash pride is treated as an interest to be amortized over the credit period
• No Available Cash Price

  the asset is recorded at tan amount equal to present value of all payments using an implied interest rate
• Other modes of acquiring PPE(IV. Issuance of equity instrument or share capital The property shall be measured following in the order of priority:)


  a.Fair value of the property receivedb. Fair value of share capitalc. Par value or stated value of the share capital